Question
*Please show all the steps* Solve for bond price issued by ABC Oil if it has a face value of $1000, coupon rate of 8%
*Please show all the steps*
Solve for bond price issued by ABC Oil if it has a face value of $1000, coupon rate of 8% and matures in 5 years. Use the following table to find the default risk premium. (Assume default risk is not a function of maturity. 1. Use the average default risk premium of bonds with a similar rating as a benchmark for the default risk premium. 2. Add the benchmark risk premium to the risk-free rate and use it as the yield to maturity of the corporate bond.)
bond | rating | required interest rate |
ABC OIL coupon rate 8% maturity 5 years | BB | ??? |
Woodbine Energy coupon rate 4% maturity 3 years | AA- | 1.93% |
Atlanta Oil coupon rate 2% maturity 5 years | BB | 3.2% |
Enbridge Inc coupon rate 10% maturity 5 years | AAA | 1.90% |
Imperial Oil coupon rate 10% maturity 3 years | BB | 2.85% |
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