Pybus, Inc. is considering issuing bonds that will mature in

16

years with an annual coupon rate of

9

percent. Their par value will be

$1,000,

and the interest will be paid semiannually. Pybus is hoping to get a AA rating on its bonds and, if it does, the yield to maturity on similar AA bonds is

12

percent. However, Pybus is not sure whether the new bonds will receive a AA rating. If they receive an A rating, the yield to maturity on similar A bonds is

13

percent. What will be the price of these bonds if they receive either an A or a AA rating?

Question content area bottom

Part 1

a. The price of the Pybus bonds if they receive a AA rating will be