A company rated AA issues a 3-year bond. The risk-free rate for the 3-year maturity is...

 

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A company rated AA issues a 3-year bond. The risk-free rate for the 3-year maturity is 3%. The lines of credit are summarized in the following table: Rating 1 year 5 years 10 20 years years AAA 12 14 20 30 AA 20 24 40 50 A 40 44 60 80 Credit margin, function of rating and maturity, in basis points Calculate the annual coupon that this firm must choose to issue its bond at par. Exactly 6 months after the issue, the company's rating is downgraded to A. The risk-free rate is still 3%. Calculate the footnote price of the bond. A company rated AA issues a 3-year bond. The risk-free rate for the 3-year maturity is 3%. The lines of credit are summarized in the following table: Rating 1 year 5 years 10 20 years years AAA 12 14 20 30 AA 20 24 40 50 A 40 44 60 80 Credit margin, function of rating and maturity, in basis points Calculate the annual coupon that this firm must choose to issue its bond at par. Exactly 6 months after the issue, the company's rating is downgraded to A. The risk-free rate is still 3%. Calculate the footnote price of the bond.

Answer rating: 100% (QA)

To calculate the annual coupon that the firm must choose to issue its bond at par we need to use the ... View the full answer