Question: George Industries needs to raise 25 million dollar to fund a new office complex. The company plans on issuing 10 year bonds with a face value of $1000 and a coupon rate of 7.0% (yearly payments). The following table summarizes the YTM for similar ten-year corporate bonds of various credit ratings:
|
Rating
|
AAA
|
AA
|
A
|
BBB
|
BB
|
|
YTM
|
6.70%
|
6.80%
|
7.00%
|
7.40%
|
8.00%
|
[A] Suppose that George's bonds receive an AAA rating, determine the price of the bonds?
[B] Suppose that George's bonds receive an AAA rating, the number of bonds that Luther must issue to raise the needed $25 million [round up]?
[C] What rating must George receive on these bonds if they want the bonds to be issued at par?
[D] Suppose that when these bonds were issued, George received a price of $972.42 for each bond. Determine the likely rating that George's bonds received?