Endeavor Inc. is contemplating issuing a

3030-year

bond with a coupon rate of

7.15 %7.15%

(annual coupon payments) and a face value of

$ 1 comma 000$1,000.

Endeavor Inc. 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 Endeavor's bonds to BBB. Yields on A-rated, long-term bonds are currently 6.47%, and yields on BBB-rated bonds are 6.77%.

a. What is the price of the bond if Endeavor Inc. maintains the A rating for the bond issue?

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