TV Azteca is a Mexican corporation listed on the NYSE and the BMV. This firm needs to finance an expansion of its cable TV network. The financing of the investment is intended to be made by an issue $100 million worth of corporate bonds, with a face value of $100,000. These The bonds will have a maturity of 3 years with a coupon rate of 5% with annual payments. The next table summarizes the yield to maturity (YTM) for coupon bonds by debt rating of moody's calificación Aaa Aa A Baa Ba YTM 0.01 0.02 0.050 0.07 0.10 a. Assume that the initial bond rating is A. Estimate the bond price associated with each of the observed ratings. Assume that there is a risk of failure to pay the face value (FV). A payment of 95,000 is expected. The probability of default is estimated at 5% and Moody's lowers its rating to Ba. b. Estimate the risk premium c. Based on your answer in (b), what is the price of the bond?
TV Azteca is a Mexican corporation listed on the NYSE and the BMV. This firm needs to finance an expansion of its cable TV network. The financing of the investment is intended to be made by an issue $100 million worth of corporate bonds, with a face value of $100,000. These The bonds will have a maturity of 3 years with a coupon rate of 5% with annual payments. The next table summarizes the yield to maturity (YTM) for coupon bonds by debt rating of moody's
calificación Aaa Aa A Baa Ba
YTM 0.01 0.02 0.050 0.07 0.10
a. Assume that the initial bond rating is A. Estimate the
b. Estimate the risk premium
c. Based on your answer in (b), what is the price of the bond?
d. Based on your assessment in (c), what is the yield that would be observed in the market?
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