Microsoft is an AAA-rated firm. It has a 16-year bond with an annual coupon rate of 4%

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Microsoft is an AAA-rated firm. It has a 16-year bond with an annual coupon rate of 4% paid semi-annually. The bond is selling for 105.

a.What is the yield to maturity of this bond?

b.The new Windows software has had abysmal sales, and as a result, the firm is downgraded to AA-rated. The yield to maturity on AA-rated bonds is 5% per year. What will be the price of the above bond after the downgrade?

c. Calculate the percentage in bond price from part (a) to part (b). Why do you think the bond price changed by such a large percentage?

Related Book For answer-question

Fixed Income Analysis

ISBN: 9781119850540

5th Edition

Authors: Barbara S. Petitt

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Posted Date: Apr 25, 2024 10:41 AM

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Microsoft is an AAA-rated firm. It has a 16-year bond with an annual coupon rate of 4%

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Answer a To find the yield to maturity of the bond we can use the bond pricing formula Bond Price C ... View the full answer

Fixed Income Analysis

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