Question: A firm issues a zero-coupon bond with a face value of R100, and a maturity of 12 years. After 2 years, when the bond has

A firm issues a zero-coupon bond with a face value of R100, and a maturity of 12 years. After 2 years, when the bond has 10 years left to maturity, the bond is downgraded resulting in a fall in its price, and the credit spread increasing to 1.24%. The US Treasury 10-year spot rate is 5.2% (this is a bond equivalent yield, so semi-annual compounding should be used).

What is the price of the bond after the price drop?

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