A bond's credit rating provides a guide to its risk. Long-term bonds rated Aa currently offer yields to maturity of 7.5% A-rated bonds sell at yields of 8% A10-year bond with a coupon rate of 7% is trading at 96.55, which represents a yield of 7.5%. If it is downgraded by Moody's from Aa to A rating, will its price rise or fall? What will the price be before and after?
A bond's credit rating provides a guide to its risk. Long-term bonds rated Aa currently offer yields to maturity of 7.5% A-rated bonds sell at yields of 8% A10-year bond with a coupon rate of 7% is trading at 96.55, which represents a yield of 7.5%. If it is downgraded by Moody's from Aa to A rating, will its price rise or fall? What will the price be before and after?
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
Section: Chapter Questions
Problem 1PS
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A bond's credit rating provides a guide to its risk. Long-term bonds rated Aa currently offer yields to maturity of 7.5% A-rated bonds sell at yields of 8% A10-year bond with a coupon rate of 7% is trading at 96.55, which represents a yield of 7.5%. If it is downgraded by Moody's from Aa to A rating, will its price rise or fall? What will the price be before and after?
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