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Endeavor Inc. is contemplating issuing a 3030​-year bond with a coupon rate of 7.15 %7.15% ​(annual...

Endeavor Inc. is contemplating issuing a

3030​-year

bond with a coupon rate of

7.15 %7.15%

​(annual coupon​ payments) and a face value of

$ 1 comma 000$1,000.

Endeavor Inc. believes it can get a rating of A from Standard​ & Poor's.​ However, due to recent financial difficulties at the​ company, Standard​ & Poor's is warning that it may downgrade​ Endeavor's bonds to BBB. Yields on​ A-rated, long-term bonds are currently 6.47%​, and yields on​ BBB-rated bonds are 6.77%.

a. What is the price of the bond if Endeavor Inc. maintains the A rating for the bond​ issue?

b. What will be the price of the bond if it is​ downgraded?

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jeff jeffy answered 1 year ago
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