Problem:
A corporate bond with a 7.700 percent coupon has eleven years left to maturity. It has had a credit rating of BB and a yield to maturity of 10.1 percent. The firm has recently become more financially stable and the rating agency is upgrading the bonds to BBB. The new appropriate discount rate will be 9.0 percent.
Requirement:
Question 1: What will be the change in the bond's price in dollars?
Question 2: What will be the change in the percentage terms?
Note: Provide support for rationale.