1. Company XYZ issued a $1 billion 10 year bond at par some four years ago (meaning there is now six years to go until maturity). The bond was split rated when issued at Baa2/BBB and carried a coupon of 4.25%. The bond is currently rated A2/A+ as the company has de-risked its credit profile over time. Calculate the current price of the bond using the information below. For this purpose, assume interest is paid only once per year. (10 points)

Current BP Spread over Comparable Maturity Govts

Maturity Governments A2/A+ Baa2/BBB

1 0.12 105 150

2 0.14 110 160

3 0.16 115 170

4 0.21 125 180

5 0.27 140 190

6 0.35 150 200

7 0.46 155 210

8 0.53 160 220

9 0.60 170 230

10 0.68 175 240