Andrew Industries is contemplating issuing a 30-year bond with a coupon rate of 5.09% (annual coupon payments) and a face value of $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 BBB. Yields on A-rated, long-term bonds are currently 4.59%, and yields on BBB-rated bonds are 4.99%.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?

Price of bond is computed as follows:-Price of bond = Present value of interest payments + Present…

Answered: Andrew Industries is contemplating…

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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Similar questions

(Bond valuation) Pybus, Inc. is considering issuing bonds that will mature in 20 years with an annual coupon rate of 11 percent. Their par value will be $1,000, and the interest will be paid semiannually. Pybus is hoping to get a AA rating on its bonds and, if it does, the yield to maturity on similar AA bonds is 12 percent. However, Pybus is not sure whether the new bonds will receive a AA rating. If they receive an A rating, the yield to maturity on similar A bonds is 13 percent. What will be the price of these bonds if they receive either an A or a AA rating? a. The price of the Pybus bonds if they receive a AA rating will be $ ______
Uliana Company wants to issue new 19-year bonds for some much-needed expansion projects. The company currently has 10.3 percent coupon bonds on the market that sell for $1,143, make semiannual payments, have a par value of $1,000, and mature in 19 years. What coupon rate should the company set on its new bonds if it wants them to sell at par? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. Answer is complete but not entirely correct.
A 10-year bond of a firm in severe financial distress has a coupon rate of 10% and sells for $900. The firm is currently renegotiating the debt, and it appears that the lenders will allow the firm to reduce coupon payments on the bond to one-half the originally contracted amount. The firm can handle these lower payments. what are the stated and expected yields to maturity of bonds? The bond makes its coupon payments annually. Do not round intermediate calculations. ( Round your answers to 2 decimal places.).
(Related to Checkpoint 9.3) (Bond valuation) Pybus, Inc. is considering issuing bonds that will mature in 23 years with an annual coupon rate of 12 percent. Their par value will be $1,000, and the interest will be paid semiannually. Pybus is hoping to get a AA rating on its bonds and, if it does, the yield to maturity on similar AA bonds is 10 percent. However, Pybus is not sure whether the new bonds will receive a AA rating. If they receive an A rating, the yield to maturity on similar A bonds is 11 percent. What will be the price of these bonds if they receive either an A or a AA rating? a. The price of the Pybus bonds if they receive a AA rating will be $ (Round to the nearest cent.)
Uliana Company wants to issue new 16-year bonds for some much-needed expansion projects. The company currently has 8 percent coupon bonds on the market that sell for $1,065, make semiannual payments, and mature in 16 years. What coupon rate should the company set on its new bonds if it wants them to sell at par? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Please solve with financial calculator or HP 10b and show inputs. Please don't use excel.
Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.
McCurdy Co.'s Class Q bonds have a 12-year maturity, $1,000 par value, and a 10% coupon paid semiannually (5% each 6 months), and those bonds sell at their par value. McCurdy's Class P bonds have the same risk, maturity, and par value, but the p bonds pay a 10% annual coupon. Neither bond is callable. At what price should the annual payment bond sell? Select the correct answer. Oa. $992.23 b. $989.21 O c. $986.19 Od. $980.15 e. $983.17
The Loughran Corporation has issued zero-coupon corporate bonds with a five-year maturity. Investors believe there is a 40% chance that Loughran will default on these bonds. If Loughran does default, investors expect to receive 25% of their promised payoff at maturity (e.g., $0.25 cents per dollar they are promised). If investors require a 7.0% expected return on their investment in these bonds, which of the following statements most accurately describes the price (per $100 face value) and current YTM of these bonds? OA. This bond is priced at $42.78 per $100 face value with a YTM of 18.5% OB. This bond is priced at $49.91 per $100 face value with a YTM of 14.9% OC. This bond is priced at $71.30 per $100 face value with a YTM of 7.0%. OD. This bond is priced at $49.91 per $100 face value with a YTM of 7.0%. OE. This bond is priced at $70.00 per $100 face value with a YTM of 7.4%.
Access Ltd is financing a new investment and was previously unsuccessful to secure a similar interest rate as they had with their previous debt from their local Bank. Given their AAA credit rating, they instead decided to issue 5000 units of a 10-year bond to fund the investment. Coupon rate is set at 8% per annum and will be paid quarterly. The face value of one of the bonds is $1,000. The estimated yield for similar bonds of comparable risk rating is 12% per annum. Determine the market price of the one of the bonds.
Kebt Corporation's Class Semi bonds have a 15-year maturity and a 7.25% coupon paid semiannually (3.625% each 6 months), and those bonds sell at their $1,000 par value. The firm's Class Ann bonds have the same risk, maturity, nominal interest rate, and par value, but these bonds pay interest annually. Neither bond is callable. At what price should the annual payment bond sell? Do not round your intermediate calculations. a. $988.31 b. $1,000.00 c. $1,035.90 d. $678.87 e. $992.53
Uliana Company wants to issue new 15-year bonds for some much-needed expansion projects. The company currently has 7 percent coupon bonds on the market that sell for $1,060, have a par value of $1,000, make semiannual payments, and mature in 15 years. What coupon rate should the company set on its new bonds if it wants them to sell at par? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Coupon rate %
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