1. LandoToys is a profitable, medium sized, retail company. Several years ago it issued a 6 percent coupon bond, which pays interest semi-annually. The bond will mature in ten years and is currently priced in the market as $1,037.19. The average yields to maturity for 10-year corporate bonds are reported in the following table by bond rating.

Bond Rating	Yield (%)	Bond Rating	Yield (%)
AAA	5.4	BB	7.3
AA	5.7	B	8.2
A	6.0	CCC	9.2
BBB	6.5	CC	10.5
		C	12.0
		D	14.5

Periodically, one company will purchase another by buying all of the target firms stock. The bonds of the target firm continue to exist. The debt obligation is assumed by the new firm. The credit risk of the bonds often changes because of this type of an event.

Suppose that the firm Treasure Toys makes an announcement that they are purchasing LandoToys. Due to Treasury Toys projected financial structure after the purchase, Standard & Poors states that the bond rating LandoToys bonds will change to BB.

1. Compute the yield to maturity of LandoToys bonds before the purchase announcement and use it to determine the likely bond rating. What is the likely new rating?

B. Assume the bonds price changes to reflect the new credit rating. What is the new price? Did the price increase or decrease?

3. What is the dollar change and percentage change in the bond price?

4. How do the bond investors feel about the announcement?