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Bond ratings A bond's credit rating provides a guide to its price. As we write this in early 2015, Aaa bonds yield 3.4% and Baa

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Bond ratings A bond's credit rating provides a guide to its price. As we write this in early 2015, Aaa bonds yield 3.4% and Baa bonds yield 4.4%. If some bad news causes a 10% fiveyear bond to be unexpectedly downrated from Aaa to Baa, what would be the effect on the bond price? (Assume annual coupons.)

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