A bonds credit rating provides a guide to its price. As we write this in Spring 2009,

Question:

A bond’s credit rating provides a guide to its price. As we write this in Spring 2009, Aaa bonds yield 5.41% and Baa bonds yield 8.47%. If some bad news causes a 10% five-year bond to be unexpectedly downrated from Aaa to Baa, what would be the effect on the bond price? (Assume annual coupons.)