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JohnNew Inc. is contemplating issuing a 20-year 6% semi-annual coupon bond. JohnNew believes it can get a rating of A from Moodys. However, due to

JohnNew Inc. is contemplating issuing a 20-year 6% semi-annual coupon bond. JohnNew believes it can get a rating of A from Moodys. However, due to recent financial difficulties at the company, Moodys is warning that it may downgrade JohnNew Inc. bonds to BBB. Yields on A-rated, long-term bonds are currently 3.6%, and yields on BBB-rated bonds are 5.4%.

(a) WhatisthepriceofthebondifJohnNewmaintainstheAratingforthebondissue? (b) What will the price of the bond be if it is downgraded? (c) WhatwouldbethepossibleratingforJohnNewInc.bondtobesoldatpar?

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