Andrew Industries is contemplating issuing a 30-year bond with a coupon rate of 6.87% (annual coupon payments)
Question:
Andrew Industries is contemplating issuing a 30-year bond with a coupon rate of 6.87% (annual coupon payments) and a face value of $1000. Andrew believes it can get a rating of A from Standard & Poor’s. However, due to recent financial difficulties at the company, Standard & Poor’s is warning that it may downgrade Andrew Industries bonds to BBB. Yields on A-rated, long-term bonds are currently 6.37%, and yields on BBB-rated bonds are 6.77%.
a. What is the price of the bond if Andrew Industries maintains the A rating for the bond issue?
b. What will the price of the bond be if it is downgraded?
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Bond Pricing and Rating Impact Given Face value F 1000 Coupon rate c 687 annual Number of periods to ...View the full answer
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Related Book For 
Fundamentals Of Corporate Finance
ISBN: 9781292437156
5th Global Edition
Authors: Jonathan Berk, Peter DeMarzo, Jarrad Harford
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