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Andrew Industries is contemplating issuing a30-year bond with a coupon rate of 8.09% (annual couponpayments) and a face value of $1,000. Andrew believes it can

Andrew Industries is contemplating issuing a30-year bond with a coupon rate of 8.09% (annual couponpayments) and a face value of $1,000. Andrew believes it can get a rating of A from Standard andPoor's. However, due to recent financial difficulties at thecompany, Standard andPoor's is warning that it may downgrade Andrew Industries bonds to BBB. Yields onA-rated long-term bonds are currently 7.59%, and yields onBBB-rated bonds are 7.99%.

a. What is the price of the bond if Andrew maintains the A rating for the bondissue?

b. What will the price of the bond be if it isdowngraded?

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