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A $1,000 par value bond has 8 years to mature. The annual rate of coupon is at 6%, and the current annual YTM is at

A $1,000 par value bond has 8 years to mature. The annual rate of coupon is at 6%, and the current annual YTM is at 10%.

a. If bond's interest is paid semiannually, how much today would you pay for the bond?

b. After purchasing the bond, Standard & Poor changes the rating on the bond from AA to BBB. What would happen to the price of the bond and why with 2 reasons?

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