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


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