Question
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
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.
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