Question
A bond's credit rating provides a guide to its risk. Suppose that long-term bonds rated Aa currently offer yields to maturity of 6%. A-rated
A bond's credit rating provides a guide to its risk. Suppose that long-term bonds rated Aa currently offer yields to maturity of 6%. A-rated bonds sell at yields of 6.3%. Suppose that a 10-year bond with a coupon rate of 6.1% is downgraded by Moody's from an Aa to A rating. a. Is the bond likely to sell above or below par value before the downgrade? Above par value Below par value b. Is the bond likely to sell above or below par value after the downgrade? Above par value Below par value
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