A bond's credit rating provides a guide to its price. In December 2020, Aaa bonds yielded 5.4%, and Baa bonds yielded 6.4%. Some bad news causes a 10% five-year bond to be unexpectedly downrated from Aaa to Baa. Assume face value is $1,000. Note: Do not round intermediate calculations. Round your answers to 2 decimal places. a. What is the bond's price if it is rated as Aaa? b. What is the bond's price if it is rated as Baa?

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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A bond's credit rating provides a guide to its price. In December 2020, Aaa bonds yielded 5.4%, and Baa
bonds yielded 6.4%. Some bad news causes a 10% five-year bond to be unexpectedly downrated from
Aaa to Baa. Assume face value is $1,000.
Note: Do not round intermediate calculations. Round your answers to 2 decimal places.
a. What is the bond's price if it is rated as Aaa?
b. What is the bond's price if it is rated as Baa?
a. Bond price
b. Bond price
$
1,782.93
1,591.01
Transcribed Image Text:A bond's credit rating provides a guide to its price. In December 2020, Aaa bonds yielded 5.4%, and Baa bonds yielded 6.4%. Some bad news causes a 10% five-year bond to be unexpectedly downrated from Aaa to Baa. Assume face value is $1,000. Note: Do not round intermediate calculations. Round your answers to 2 decimal places. a. What is the bond's price if it is rated as Aaa? b. What is the bond's price if it is rated as Baa? a. Bond price b. Bond price $ 1,782.93 1,591.01
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