Q$8$HMK Enterprises would like to raise $$10\mathrm{.}0$ million to invest in capital expenditures. The company plans to issue five$-$year bonds with a face value of $$1,000$ and a coupon rate

of $6\mathrm{.}58\%($annual payments$).$ The following table summarizes the yield to maturity for five$-$year $($annual$-$payment$)$ coupon corporate bonds of various ratings: $$

a$.$ Assuming the bonds will be rated AA$,$ what will be the price of the bonds?

b$.$ How much of the total principal amount of these bonds must HMK issue to raise $$10\mathrm{.}0$ million today, assuming the bonds are AA rated? $($Because HMK cannot issue a

fraction of a bond, assume that all fractions are rounded to the nearest whole number.$)$

c$.$ What must be the rating of the bonds for them to sell at par?

d$.$ Suppose that when the bonds are issued, the price of each bond is $$960\mathrm{.}02.$ What is the likely rating of the bonds? Are they junk bonds?

a$.$ Assuming the bonds will be rated AA$,$ what will be the price of the bonds?

The price of the bonds will be $,($Round to the nearest cent.$)$

b$.$ How much of the total principal amount of these bonds must HMK issue to raise $$10\mathrm{.}0$ million today, assuming the bonds are AA rated? $($Because HMK cannot issue a

fraction of a bond, assume that all fractions are rounded to the nearest whole number.$)$

The number of bonds to be issued is $.($Round up to the nearest integer.$)$

c$.$ What must be the rating of the bonds for them to sell at par? $($Select the best choice below.$)$

A$.$ For the bonds to sell at par, the coupon must equal the yield. Since the coupon is $6\mathrm{.}58\%,$ the yield must also be $6\mathrm{.}58\%,$ or A rated.

B$.$ For the bonds to sell at par, the coupon must equal the yield. Since the coupon is $6\mathrm{.}95\%,$ the yield must also be $6\mathrm{.}95\%,$ or BBB rated.

C$.$ For the bonds to sell at par, the coupon must equal the yield. Since the coupon is $6\mathrm{.}58\%,$ the yield must also be $6\mathrm{.}58\%,$ or BBB rated.

D$.$ For the bonds to sell at par, the coupon must equal the yield. Since the coupon is $6\mathrm{.}34\%,$ the yield must also be $6\mathrm{.}34\%,$ or A rated.

d$.$ Suppose that when the bonds are issued, the price of each bond is $$960\mathrm{.}02.$ What is the likely rating of the bonds? Are they junk bonds? $($Select the best choice below.$)$

A$.$ Given a yield of $7\mathrm{.}57\%,$ it is likely these bonds are rated BB$.$ No$,$ BQ$-$rated bonds are not junk bonds.

B$.$ Given a yield of $6\mathrm{.}95\%,$ it is likely these bonds are rated BBB$.$ Yes, BBE$-$rated bonds are junk bonds.

C$.$ Given a yield of $6\mathrm{.}95\%,$ it is likely these bonds are rated BBB$.$ No$,$ BBB$-$rated bonds are not junk bonds.

D$.$ Given a yield of $7\mathrm{.}57\%,$ it is likely these bonds are rated BB$.$ Yes, BB$-$rated bonds are junk bonds.

Data table

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