Other Information:

Bonds Payable: On December 31, 20X1, the Corp. issued 1,000, 6% bonds with a 20-year maturity. The bonds pay interest every six months (June 30 and December 31), and the market interest rate is 10%. NOTE: the face of a bond is $1,000 unless otherwise stated.

Stock Price-Firm: The market price of the stock (per the stock exchange) was $34 at year-end 20X3, $26 at year-end 20X2, $22 at year-end 20X1, and $17 at year-end 2006. Market Information: The average return in the market over 20X1-20X3 is 12%, and its standard deviation 6.50%. Treasury Bonds: The average rate on U.S. Treasury bonds was 5%, which is considered to be the risk free rate of return. Stock Shares: the corporation. has 600,000 authorized shares and 200,000 issued, and 126,000 outstanding at year-end 20X3. Stock Valuation Data: The required rate of return demanded by some investors is approximately 17%. The firm's beta is 1.75. The firm estimates that the growth rate in dividends is 20% for 20X4 and 20X5, and 14% for all years thereafter. Treasury Stock: The firm had zero treasury stock at year-end 20X0. The firm purchased: 4,000 treasury shares at year-end 20X1, 44,000 at year-end 20X2, and 26,000 at year-end 20X3. There were no sales of treasury stock during this periodonly purchases of treasury stock. Question: On December 31, 20X1, Art Levinsen Corporation issued 1,000, 6% bonds with a 20-year maturity. The bonds pay interest semiannually (on June 30 and December 31), and the market/effective interest rate is 10%. Note: the face of all bonds is $1,000 unless otherwise stated. Use the "Rate" function in Excel to solve this problem. Assume Art Levinsen Corporation is contemplating purchasing its own 6%, 20-year bonds on the open market on December 31, 20X6 for $748,485. These bonds pay interest every six months (June 30 and December 31), and the market interest rate is 10%.

Note: Interest payments (Pmt) and the future value (Fv) must be entered as negative numbers into the Rate function fields. Assume interest payments are at the end of the period. For "Guess" use .11 to represent 11%. The resulting rate will be for 6 months and therefore must be multiplied by 2 for an annual yield. QUESTION a) What is the yield-to-maturity for these bonds at 12/31/20X6 with 14 remaining years until maturity. b. Assume that the change in the yield to maturity is due solely to default risk and this change in default risk is due to a change in the bond's ratings. As a result, would this rating have increased (upgrade) or decreased (downgrade). Explain.