Question
In: Finance
Andrew Industries is contemplating issuing a30-yearbond with a coupon rate of7.09%(annual coupon...
Andrew Industries is contemplating issuing a
30-year
bond with a coupon rate of
7.09%
(annual coupon payments) and a face value of
$1,000.
Andrew 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 Andrew Industries' bonds to BBB. Yields on A-rated, long-term bonds are currently
6.49%,
and yields on BBB-rated bonds are
6.87%.
a. What is the price of the bond if Andrew Industries maintains the A rating for the bond issue?
b. What will be the price of the bond if it is downgraded?
Solutions
jeff jeffy answered 2 years agoRelated Solutions
Andrew Industries is contemplating issuing a 30-year bond with a coupon rate of 5.79 %(annual coupon...
Andrew Industries is contemplating issuing a 30-year bond with
a coupon rate of 5.79 %(annual coupon payments) and a face value
of $1,000. Andrew believes it can get a rating of A from Standard
and Poor's. However, due to recent financial difficulties at the
company, Standard and Poor's is warning that it may downgrade
Andrew Industries bonds to BBB. Yields on A-rated long-term bonds
are currently 5.29 % and yields on BBB-rated bonds are 5.69 %
a. What is the...
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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
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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
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A bond investor is analyzing the following annual coupon bonds: Issuing Company Annual Coupon Rate Smith...
A bond investor is analyzing the following annual coupon
bonds:
Issuing Company
Annual Coupon Rate
Smith Corporation
6%
Irwin Incorporated
12%
Johnson, LLC
9%
Each bond has 10 years until maturity and the same level of
risk. Their yield to maturity (YTM) is 9%. Interest rates are
assumed to remain constant over the next 10 years.
Using the previous information, correctly match each curve on
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Williams Industries has decided to borrow money by issuing perpetual bonds with a coupon rate of...
Williams Industries has decided to borrow money by issuing
perpetual bonds with a coupon rate of 8 percent, payable annually.
The one-year interest rate is 8 percent. Next year, there is a 35
percent probability that interest rates will increase to 10
percent, and there is a 65 percent probability that they will fall
to 6 percent. Assume a par value of $1,000.
a. What will the market value of these bonds be if they are
noncallable? (Do not round...
Williams Industries has decided to borrow money by issuing perpetual bonds with a coupon rate of...
Williams Industries has decided to borrow money by issuing
perpetual bonds with a coupon rate of 10 percent, payable annually,
and a par value of $1,000. The one-year interest rate is 10
percent. Next year, there is a 40 percent probability that interest
rates will increase to 12 percent and a 60 percent probability that
they will fall to 7 percent.
a.
What will the market value of these bonds be if they are
noncallable? (Do not round intermediate...
Williams Industries has decided to borrow money by issuing perpetual bonds with a coupon rate of...
Williams Industries has decided to borrow money by issuing
perpetual bonds with a coupon rate of 8 percent, payable annually.
The one-year interest rate is 8 percent. Next year, there is a 35
percent probability that interest rates will increase to 10
percent, and there is a 65 percent probability that they will fall
to 6 percent. Assume a par value of $1,000.
a. What will the market value of these bonds be if they are
noncallable? (Do not round...
Williams Industries has decided to borrow money by issuing perpetual bonds with a coupon rate of...
Williams Industries has decided to borrow money by issuing
perpetual bonds with a coupon rate of 8 percent, payable annually.
The one-year interest rate is 8 percent. Next year, there is a 30
percent probability that interest rates will increase to 10
percent, and there is a 70 percent probability that they will fall
to 6 percent. Assume a par value of $1,000.
a.
What will the market value of these bonds be if they are
noncallable? (Do not...
Williams Industries has decided to borrow money by issuing perpetual bonds with a coupon rate of...
Williams Industries has decided to borrow money by issuing
perpetual bonds with a coupon rate of 10 percent, payable annually,
and a par value of $1,000. The one-year interest rate is 10
percent. Next year, there is a 30 percent probability that interest
rates will increase to 12 percent and a 70 percent probability that
they will fall to 7 percent.
a.
What will the market value of these bonds be if they are
noncallable? (Do not round intermediate...
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