Question
A AAA rated bond has a price of $9090, years to maturity of 10, and a coupon rate of 2%. The treasury yield is 1%.
A AAA rated bond has a price of $9090, years to maturity of 10, and a coupon rate of 2%. The treasury yield is 1%. The AA spread is 2.17%. The AA spread is 2.95%. If the bond is downgraded to a AA credit rating, what will happen to its price? If you purchased the bond when it was rated AAA and sold it a year later, after it has been downgraded to AA, what would your holding period return be?
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Practical Financial Management
Authors: William R. Lasher
6th Edition
1439080496, 978-1439080498
