Question
Andrew Industries is contemplating issuing a 30-year bond with a coupon rate of 7.00% (annual coupon payments) and a face value of $1,000.) Andrew believes
Andrew Industries is contemplating issuing a 30-year bond with a coupon rate of 7.00% (annual coupon payments) and a face value of $1,000.)
Andrew believes it can get a rating of A from Standard & Poor's. However, due to recent financial difficulties at the company, Standard & Poor's is warning that it may downgrade Andrew Industries' bonds to BBB. Yields on A-rated, long-term bonds are currently 6.50%, and yields on BBB-rated bonds are 6.90%.
a. What is the price of the bond if Andrew Industries maintains the A rating for the bond issue?
b. What will be the price of the bond if it is downgraded?
a. What is the price of the bond if Andrew Industries maintains the A rating for the bond issue?
If Andrew maintains the A rating for the bond issue, the price of the bond is. (Round to the nearest cent.)
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Forecasting Principles And Practice
Authors: Rob J Hyndman, George Athanasopoulos
3rd Edition
0987507133, 978-0987507136
