A 5-year 4% A-rated corporate bond a yield to maturity is 6%. [Assume annual or semiannual) The bond gets downgraded to BB- It s yield is likely to be than 4% and then 6% and the price is likely to be than A 12-year 7% semiannual corporate bond is quoted at 99.625 This is called the clean (or flat) price The bond pays coupons on February 15 and August 15. You are buying $11,000 face value of the bond on June 30 Your commission is $2 per $1000 face value Your invoice price s equal to the dean price plus the accrued interest plus the commission. A 5- year 6% annual coupon bond yields 4% The bond is callable is one or two years at 102 What is the yield to cel? Solve the problem is stages Compute the price of the bond first Assume face = $1000 Draw the picture of the bond s cash flows assuming it will be called in one year Compute the IRR on the cash flows ie solve for y $ Coup + $ C Pre