Reviewing Table 7-1 on page 241 of the textbook, we can see the various ratings given to corporate bonds by Standard & Poor's. AAA is the highest rating, while CC is the lowest of available interest-bearing bonds. C ratings are for income bonds where no interest is paid & a rating of D is provided to bonds in default. Bonds rated BB or lower are considered to be junk bonds, also known as high-yield bonds because of the high interest rates they pay the investor to compensate for increased risk. I would estimate that several factors would need to be present for a smart investor to purchase junk bonds. These include excess available cash to risk, junk bonds with a shorter maturity life, and interest rates much better than offered by companies with higher ratings.

What would be a realistic present value cost of a 5-year bond with a 10% coupon rate and B rating?