According to an article in the Wall Street Journal, bonds issued in 2016 by the toy store chain Toys "R" Us that matured in 2018 and had a 10% coupon were trading at “31 cents on the dollar." Why would an investor sell one of these bonds for 31 cents on the dollar rather than hold the bond for two years and receive 100 cents on the dollar when the bond matured? Which of the following ratings is this bond likely to have received: AAA, BBB, or CCC? Briefly explain.

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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According to an article in the Wall Street Journal, bonds issued in 2016
by the toy store chain Toys “R” Us that matured in 2018 and had a 10% coupon were
trading at "31 cents on the dollar." Why would an investor sell one of these bonds for
31 cents on the dollar rather than hold the bond for two years and receive 100 cents on
the dollar when the bond matured? Which of the following ratings is this bond likely
to have received: AAA, BBB, or CCC? Briefly explain.
Transcribed Image Text:2 According to an article in the Wall Street Journal, bonds issued in 2016 by the toy store chain Toys “R” Us that matured in 2018 and had a 10% coupon were trading at "31 cents on the dollar." Why would an investor sell one of these bonds for 31 cents on the dollar rather than hold the bond for two years and receive 100 cents on the dollar when the bond matured? Which of the following ratings is this bond likely to have received: AAA, BBB, or CCC? Briefly explain.
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