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acific Petroleum Pte Ltd has an outstanding 8% annual coupon five-year bond with a credit rating of BBB+. Unfortunately, one of its oil tankers collided
acific Petroleum Pte Ltd has an outstanding 8% annual coupon five-year bond with a credit rating of BBB+. Unfortunately, one of its oil tankers collided into another carrier and resulted in a massive oil spill along the Straits of Malacca. This news led to an unexpected bond rating downgrade from BBB+ to BBB-. As at the time of the oil spill, BBB+ bonds yielded 3.5% and BBB- bonds yielded 4.5%.
Use the present value of annuity formula, discuss and calculate the effect on the bond price due to the oil spill.
Use the present value of annuity formula, discuss and calculate the effect on the bond price due to the oil spill.
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The downgrade in bond rating from BBB to BBB will increase the required yield on the bond which in t...
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Finance Applications and Theory
Authors: Marcia Cornett, Troy Adair
3rd edition
1259252221, 007786168X, 9781259252228, 978-0077861681
