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Andrew Industries is contemplating issuing a 30-year bond with a coupon rate of 7.88 % (annual coupon payments) and a face value of $1 comma 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 7.38 %, and yields on BBB rated bonds are 7.78 %. 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?

Andrew Industries is contemplating issuing a 30-year bond with a coupon rate of 7.88 % (annual coupon payments) and a face value of $1 comma 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 7.38 %, and yields on BBB rated bonds are 7.78 %. 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?

Essentials Of Investments
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
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Andrew Industries is contemplating issuing a 30-year bond with a coupon rate of 7.88 % (annual coupon payments) and a face value of $1 comma 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 7.38 %, and yields on BBB rated bonds are 7.78 %. 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?
Transcribed Image Text:Andrew Industries is contemplating issuing a 30-year bond with a coupon rate of 7.88 % (annual coupon payments) and a face value of $1 comma 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 7.38 %, and yields on BBB rated bonds are 7.78 %. 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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