Question
A corporate bond with a coupon rate of 8.0 percent has 12 years left to maturity. It has had a credit rating of BBB and
A corporate bond with a coupon rate of 8.0 percent has 12 years left to maturity. It has had a credit rating of BBB and a yield to maturity of 8.7 percent. The firm has recently gotten into some trouble and the rating agency is downgrading the bonds to BB. The new appropriate discount rate will be 10.0 percent. (Assume interest payments are semiannual.)
What will be the change in the bonds price in dollars? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your final answer to 2 decimal places.)
What will be the change in the percentage? (Negative answer should be indicated by a minus sign. Do not round intermediate calculations. Round your final answer to 2 decimal places.)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started