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Question 3 The yield to maturity for 25-year bonds is as follows for four different bond rating categories: AAA 9.4%A 10.0% AA 9.6% BBB 10.2%

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Question 3 The yield to maturity for 25-year bonds is as follows for four different bond rating categories: AAA 9.4%A 10.0% AA 9.6% BBB 10.2% The bonds of Divan Corporation were rated as AA and issued at 125 percent of par. Determine: i) The coupon rate of the bonds, assuming an annual interest rates and $1,000 par value. (4 marks) ii) The value of the bond if the bonds have been downgraded to BBB after 3 years of issue. (4 marks)

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