Effect of bond rating change (LO16-2) The yield to maturity for 10-year bonds is as follows for four different bond rating categories:

Aaa

9.40%

Aa2

10.00%

Aal

9.60%

Aa3

10.60%

The bonds of Falter Corporation were rated as Aaa and issued at par a few weeks ago.

The bonds have just been downgraded to Aa2. Determine the new price of the bonds, assuming a 10-year maturity and semiannual interest payments. (Refer to Semiannual Interest and Bond Prices in Chapter 10 for a review if necessary.)

Present value of interest payments

Present value of principal payment at maturity

Total present value
Present value of interest payments
Present value of payment at maturity
Total present value or price of the bond