Andrew Industries is contemplating issuing a 30-year bond with a coupon rate of 7.05% (annual coupon...

 

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Andrew Industries is contemplating issuing a 30-year bond with a coupon rate of 7.05% (annual coupon payments) and a face value of $1,000. 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 6.46%, and yields on BBB-rated bonds are 6.72%. a. What is the price of the bond if Andrew Industries maintains the A rating for the bond issue? b. What will be the price of the bond if it is downgraded? a. What is the price of the bond if Andrew Industries maintains the A rating for the bond issue? If Andrew maintains the A rating for the bond issue, the price of the bond is $ b. What will be the price of the bond if it is downgraded? If it is downgraded, the new bond's price will be $ (Round to the nearest cent.) (Round to the nearest cent.) Andrew Industries is contemplating issuing a 30-year bond with a coupon rate of 7.05% (annual coupon payments) and a face value of $1,000. 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 6.46%, and yields on BBB-rated bonds are 6.72%. a. What is the price of the bond if Andrew Industries maintains the A rating for the bond issue? b. What will be the price of the bond if it is downgraded? a. What is the price of the bond if Andrew Industries maintains the A rating for the bond issue? If Andrew maintains the A rating for the bond issue, the price of the bond is $ b. What will be the price of the bond if it is downgraded? If it is downgraded, the new bond's price will be $ (Round to the nearest cent.) (Round to the nearest cent.)

Answer rating: 100% (QA)

To calculate the price of the bond we can use the present value formula The present value of the bonds cash flows coupon payments and face value is eq... View the full answer