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A Bonds credit rating provides a guide to its risk. Long term bonds rated as Aa currently offers yield to maturity of 8.5 %. A

  1. A Bonds credit rating provides a guide to its risk. Long term bonds rated as Aa currently offers yield to maturity of 8.5 %. A rated Bonds sells at yield of 8.8 %. If a 10 year bond with a coupon rate of 8% is downgraded by Moodys (Rating Agency) from Aa to A rating, what is likely effect of the bond price? (10 marks) Provide calculation and reasons.

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