price of the bond be if it is downgraded, Financial Management

Andrew Industries is contemplating issuing a 30-year bond with a coupon rate of 7% (annual coupon payments) and a face value of $1000. 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 6.5%, and yields on BBB-rated bonds are 6.9%.

a.    What is the price of the bond if Andrew maintains the A rating for the bond issue?

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

Posted Date: 3/14/2013 1:55:15 AM | Location : United States





I am facing some problems in solving the b part of this question please somebody help me out for this.

Posted by | Posted Date: 3/14/2013 1:56:40 AM


Related Discussions:- price of the bond be if it is downgraded, Assignment Help, Ask Question on price of the bond be if it is downgraded, Get Answer, Expert's Help, price of the bond be if it is downgraded Discussions

Write discussion on price of the bond be if it is downgraded
Your posts are moderated
Related Questions
Determine the advantages of explicit cost Explicit cost of an interest bearing debt will be the discount rate which equates present value of the contractual future payments of

Collecting Information and Forecasting: All budgets must be based on accurate and reasonable information. A budget derived from information which is irrelevant to the actual or

Problem: (a) Critically analyse interest rate swap and currency swap. (b) Explain why a bank may face credit risk when it enters into offsetting swap contracts. (c) Two

Objectives of financial services authority FSMA provides four statutory objectives to FSA. They are: Market Confidence: Maintaining confidence in the financial system;

They are issued in the local market, by a foreign borrower are usually denominated in the local currency. For example, Yankee bonds are USD denominated bon

Enumerate the Internal development of any business or 'organic growth' Business grows using its own internal resources. - Reduces risk of the high cost of integrating cultur

The Pennington Corporation issued a new series of bonds on January 1, 1979. The bonds were sold at par ($1,000), have a 12 percent coupon, and mature in 30 years, on December 31,

Determine the Types of users Investors -look at the risk of their investment, future growth and profitability. Managers / employees-have access to more information and will want

What creates the APV capital budgeting framework useful for analyzing foreign capital expenditures? The APV framework is a value - additivity method. Since international projects

Are there any legal factors which could restrict a corporation in its effort to pay cash dividends to common stockholders?  Explain. A firm might be legally restricted as to the