The bonds of swanson Corp. were rated as Aaa and issued at par a few weeks...

The bonds of swanson Corp. were rated as Aaa and issued at par a few weeks ago. the bonds have been downgraded to Aa2. Determine the new price of the bonds, assuming a 10-year maturity and semiannual interest payments.

Do mot round intermediate calculations and round your answer to 2 decimal places.

Aaa is 8.40%

Aa1 is 8.60%

Aa2 is 11.00%

Aa3 is 12.00%

What is the new price of the bonds?

Solutions

Expert Solution

As bond were issued at par, YTM = Coupon Rate

Coupon Rate = 8.40%

Calculating New Price,

Using TVM Calculation,

PV = [FV = 1,000, PMT = 42, N = 20, I = 0.11/2]

PV = $844.65

Bond Price = $844.65

jeff jeffy answered 2 years ago

Next > < Previous

Related Solutions

An investment firm recommends that a client invest in bonds rated AAA, A, and B. The...

An investment firm recommends that a client invest in bonds rated AAA, A, and B. The average yield on AAA bonds is 5%, on A bonds 6%, and on B bonds 9%. The client wants to invest twice as much in AAA bonds as in B bonds. How much should be invested in each type of bond if the total investment is $14,000, and the investor wants an annual return of $870 on the three investments. The client should invest...

An investment firm recommends that a client invest in bonds rated AAA, A, and B. The...

An investment firm recommends that a client invest in bonds rated AAA, A, and B. The average yield on AAA bonds is 4%, on A bonds 5%, and on B bonds 8%. The client wants to invest twice as much in AAA bonds as in B bonds. How much should be invested in each type of bond under the following conditions? A The total investment is $9,000, and the investor wants an annual return of $470 on the three investments....

An investment firm recommends that a client invest in bonds rated AAA, A, and B. The...

An investment firm recommends that a client invest in bonds rated AAA, A, and B. The average yield on AAA bonds is 4%, on A bonds 5%, and on B bonds 8%. The client wants to invest twice as much in AAA bonds as in B bonds. How much should be invested in each type of bond under the following conditions? A. The total investment is $18 comma 000, and the investor wants an annual return of $940 on the...

Citibank issued bonds few years ago. Investor John sells $100 par of the bonds mid-accrual period...

Citibank issued bonds few years ago. Investor John sells $100 par of the bonds mid-accrual period settlement on 8/19/2020. Givens: Coupon = 6% Coupon Payment Frequency = Semi-annual Interest Payment Dates are March 31 and Sept 30th Maturity Date September 30th, 2023 Day Count Convention = 30/360 Yield-to-Maturity 4% What are the Full (Dirty) proceeds of the sale of this bond closest to on August 19th, 2020? (bond does not accrue interest on 8/19)

The Pennington corporation issued bonds on January 1, 1987. The bonds were sold at par had...

The Pennington corporation issued bonds on January 1, 1987. The bonds were sold at par had 12% annual coupon paid semi-annually and mature December 31, 2016. a) What was the Yield-to-Maturity (YTM) on the date the bonds were issued? b) What was the price on January 1, 1992, assuming interest rates have fallen to 10%? c) Find the current yield, capital gains/losses yield and total yield on January 1, 1992?

January 1, 2020, Farhaan Corp. issued bonds with a par value of $ 1,000,000 at 98...

January 1, 2020, Farhaan Corp. issued bonds with a par value of $ 1,000,000 at 98 (which is net of issue costs), due in 15 years. Six years after the issue date, the entire issue is called at 102 and cancelled. Instructions Prepare the journal entry to reflect the reacquisition of the bond assuming the straight-line amortization method.

SweetFish Corp. issued bonds with a par value of $875,000 and a five-year life on May...

SweetFish Corp. issued bonds with a par value of $875,000 and a five-year life on May 1, 2020. The contract interest rate is 7.00%. The bonds pay interest on October 31 and April 30. They were issued at a price of $839,515 when the market interest rate was 8.00%. SweetFish Corp.’s year-end is December 31. a. Prepare an amortization table for these bonds that covers their entire life. Use the effective interest method of allocating interest. (Do not round intermediate...

Suppose you purchase a 9-year AAA-rated Swiss bond for par that is paying an annual coupon...

Suppose you purchase a 9-year AAA-rated Swiss bond for par that is paying an annual coupon of 6 percent and has a face value of 1,400 Swiss francs (SF). The spot rate is U.S. $0.66667 for SF1. At the end of the year, the bond is downgraded to AA and the yield increases to 8 percent. In addition, the SF depreciates to U.S. $0.74074 for SF1. a. What is the loss or gain to a Swiss investor who holds this...

Suppose you purchase a 10-year AAA-rated British bond for par that is paying an annual coupon...

Suppose you purchase a 10-year AAA-rated British bond for par that is paying an annual coupon of 9 percent and has a face value of 1,000 British Pounds (£). The spot rate is US$1.105 for £. At the end of the year, the bond is downgraded to AA and the yield increases to 11 percent. In addition, the new spot rate becomes US$0.985 for £. What is the loss or gain to a U.S. investor who holds this bond for...

On June 30, 2009, Einstein Corp. issued 10% bonds with a par value of $1,000,000 due...

On June 30, 2009, Einstein Corp. issued 10% bonds with a par value of $1,000,000 due in 20 years. They were issued at 98 and were callable at 102 at any date after June 30, 2017. Because of lower interest rates and a significant change in the company’s credit rating, it was decided to call the entire issue on June 30, 2018, and to issue new bonds. New 6% bonds were sold in the amount of $1,100,000 at 101; they...

Subjects