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IBM plans to issue a bond with a 30-year term, a coupon rate of 5.39 % (annual coupon payments) and a face value of $
IBM plans to issue a bond with a 30-year term, a coupon rate of 5.39 % (annual coupon payments) and a face value of $ 1,000 They assume they can get an A rating from S&P. However, it possible they may get a rating of BBB due to some trouble coming. Yields on A-rated long-term bonds are currently 4.89%, and yields on BBB-rated bonds are 5.29%.
a. What is the value (per $1,000 of Face) of the bond if it is A rated?
b. What is the value (per $1,000 of Face) of the bond if it is BBB rated?
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