A bondrsquos credit rating provides a guide to its risk, Financial Management

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A bondrsquos credit rating provides a guide to its risk

A bond’s credit rating provides a guide to its risk. Long-term bonds rated Aa currently offer yields to maturity of 9.4%. A-rated bonds sell at yields of 9.7%. Assume a 10-year bond with a coupon rate of 8.9% is downgraded by Moody’s from Aa to A rating.

A- Calculate the initial price

B-Calculate the new price

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Financial Management: A bondrsquos credit rating provides a guide to its risk

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