The project bond is a 10 year issue with fixed rate coupon 5.5% per annum. At the
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Question:
The project bond is a 10 year issue with fixed rate coupon 5.5% per annum. At the end of sixth (6th) year from its issuance, the Credit Rating Agency downgrades the project bond to BB+ (non-investment grade) from BBB-. Upon the credit downgrade, investors demand a higher return of 7.5% per annum due to the weakened credit profile of the project.
Calculate the project bond price following the credit downgrade.
Show your computation.
Expert Answer:
To calculate the project bond price following the credit downgrade well use the present value formul... View the full answer
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