Question
Andrew Industries is contemplating issuing a 30 -year bond with a coupon rate of 7.01 % (annual couponpayments) $1,000 . Andrew believes it can get
Andrew Industries is contemplating issuing a 30-year bond with a coupon rate of 7.01 % (annual couponpayments) $1,000. Andrew believes it can get a rating of A from Standard& Poor's.However, due to recent financial difficulties at thecompany, Standard& Poor's is warning that it may downgrade AndrewIndustries' bonds to BBB. Yields onA-rated, long-term bonds are currently 6.48 % and yields on BBB-rated bonds are 6.85 %
a. What is the price of the bond if Andrew Industries maintains the A rating for the bondissue?
b. What will be the price of the bond if it isdowngraded?
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Probability And Statistics For Engineering And The Sciences
Authors: Jay L. Devore
9th Edition
1305251806, 978-1305251809
