You must use the "Rate" function in Excel to solve this problem. Assume Art Levinsen Corporation is contemplating purchasing its own 6%, 20-year bonds on the open market on December 31, 20X6 for $748,485. These bonds pay interest every six months (June 30 and December 31), and the market interest rate is 10%. HINTS: Interest payments (Pmt) and the future value (Fv) must be entered as negative numbers into the Rate function fields. Assume interest payments are at the end of the period. For "Guess" use .11 to represent 11%. The resulting rate will be for 6 months and therefore must be multiplied by 2 for an annual yield. The face value of bonds is 9.24%.
Assume that the change in the yield to maturity is due solely to default risk and this change in default risk is due to a change in the bonds ratings. As a result, would this rating have increased (upgrade) or decreased (downgrade). Explain.