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Bonds of equivalent risk yield

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Reference no: EM13705302

The bonds of Microhard, Inc. carry a 12% annual coupon, have a $1,000 face value, and mature in 4 years. Bonds of equivalent risk yield 10%. Microhard is having cash flow problems and has asked its bondholders to accept the following deal:

The firm would like to make the next three coupon payments at half the scheduled amount, and make the final coupon payment be $300. If this plan is implemented and investors still demand a 10% return, what will happen to the market price of the bond?

 

Reference no: EM13705302

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