1) The yield to maturity for 10-year bonds is as follows for 3 different bond rating categories. AAA 7.5% AA 9% A 12% The bonds of Gallagher Inc. were rated at AA and issued at par last month. The bonds have now been downgraded to A.

a) What was the price of the Gallagher bonds when they were issued? (1 mark)

b) Determine the new price of the bonds, assuming a 15-year maturity and semiannual interest payments. (2 marks)

c) What 2 factors might impact a bonds rating? (2 marks)