it does, the yield to maturity on similar AA bonds is 11.5 percent. However, Pybus is not sure whether the new bonds will receive If they receive an A rating, the yield to maturity on similar A bonds is 12.5 percent What will be the price of these bonds if they re oither an A or a AA rating?

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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(Related to Checkpoint 9.3) (Bond valuation) Pybus, Inc. is considering issuing bonds that will mature in 25 years with an annual coupon
rate of 8 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 11.5 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 125 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 $ 714.25 (Round to the nearest cent.)
b. The price of the Pybus bonds if they receive an A rating will be S (Round to the nearest cent.)
Transcribed Image Text:(Related to Checkpoint 9.3) (Bond valuation) Pybus, Inc. is considering issuing bonds that will mature in 25 years with an annual coupon rate of 8 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 11.5 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 125 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 $ 714.25 (Round to the nearest cent.) b. The price of the Pybus bonds if they receive an A rating will be S (Round to the nearest cent.)
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