Aflac bond mentioned in the chapter opener was rated A− by Moody’s, while the AMD bond was rated CCC.

a. Do these ratings help explain the difference in the yields on the firms’ bonds noted in the chapter opener? Briefly explain.

b. At the same time that AMD’s bonds had yields above 10%, an article in the Wall Street Journal noted that AMD “is angling to lower the cost of virtual reality, targeting the field with a new line of graphics hardware priced at $199—half or less the cost of comparable products.” If AMD is successful in earning large profits from selling its new virtual reality hardware, what is the effect likely to be on its bond yields? Illustrate your answer with a graph showing the market for AMD’s bonds.