What will the price of the bond be if it is ?downgraded


Problem: Andrew Industries is contemplating issuing a? 30-year bond with a coupon rate of

7.47 %7.47%

?(annual coupon? payments) and a face value of

$ 1 comma 000$1,000.

Andrew believes it can get a rating of A from Standard and? Poor's. However, due to recent financial difficulties at the? company, Standard and? Poor's is warning that it may downgrade Andrew Industries bonds to BBB. Yields on? A-rated, long-term bonds are currently

6.97 %6.97%?,

and yields on? BBB-rated bonds are

7.37 %7.37%.

a. What is the price of the bond if Andrew maintains the A rating for the bond ?issue?

b. What will the price of the bond be if it is ?downgraded?

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Finance Basics: What will the price of the bond be if it is ?downgraded
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