Question

Marlite Engineering would like to raise $ 10.0 million to invest in capital expenditures. The company plans to issue​ five-year bonds with a face value of $ 1 000 and a coupon rate of 6.51 % ​(annual payments). The following table summarises the yield to maturity for​ five-year (annual-payment) coupon corporate bonds of various​ ratings

Rating	AAA	AA	A	BBB	BB
YTM	6.126.12​%	6.336.33​%	6.516.51​%	6.946.94​%	7.527.52​%

a. Assuming the bonds will be rated​ AA, the price of the bonds will be ​$ nothing. ​(Round to the nearest​ cent.)

b. To raise $ 10.0 million​ today, assuming the bonds are AA​ rated, the number of bonds to be issued is nothing. ​(Round up to the nearest​ integer.)

c. What must the rating of the bonds be for them to sell at​ par? ​(Select the best choice​ below.)

A. For the bonds to sell at​ par, the coupon must equal the yield. Since the coupon is 6.51 %​, the yield must also be 6.51 %​, or BBB rated.

B. For the bonds to sell at​ par, the coupon must equal the yield. Since the coupon is 6.33 %​, the yield must also be 6.33 %​, or A rated.

C. For the bonds to sell at​ par, the coupon must equal the yield. Since the coupon is 6.94 %​, the yield must also be 6.94 %​, or BBB rated.

D. For the bonds to sell at​ par, the coupon must equal the yield. Since the coupon is 6.51 %​, the yield must also be 6.51 %​, or A rated. d. Suppose that when the bonds are​ issued, the price of each bond is $ 959.16.

d.What is the likely rating of the​ bonds? Are they junk​ bonds? ​(Select the best choice​ below.)

A. Given a yield of 6.94 %​, it is likely these bonds are rated BBB.​ Yes, BBB-rated bonds are junk bonds.

B. Given a yield of 7.52 %​, it is likely these bonds are rated BB.​ Yes, BB-rated bonds are junk bonds.

C. Given a yield of 6.94 %​, it is likely these bonds are rated BBB.​ No, BBB-rated bonds are not junk bonds.

D. Given a yield of 7.52 %​, it is likely these bonds are rated BB.​ No, BB-rated bonds are not junk bonds

Answer 1