1a. The bonds price increases.

b. The bond is downgraded by the rating agencies.

c. A change in the bankruptcy code makes it more difficult for the bondholders to receive payments in the event the firm declares bankruptcy.

d. The economy seems to be shifting from a boom to a recession.

e. Investors learn that the bonds are subordinated to another debt issue.

2. Yield to Maturity (YTM). Findlay Industries bonds have 6 years left to maturity. Interest is paid annually, and the bonds have a $1,000 par value and a coupon rate of 10%. (5 points)

a. What is the YTM at a current market price of $865? (HINT: use Excel function, =RATE).

b. Would you pay $865 for this bond if you thought that the fair market interest rate was 12%? YES or NO.