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Arial & Wrap Text General LL LCopy Paste Format Painter BIU Av Es Merge & Center $ % & Conditional Format as Cell Formatting Table Styles Clipboard Font Aligament B Number Styles P16 A B D E F G H 1 J K HMK Enterprises would like to raise $10 million to invest in capital expenditures. The company plans to issue five-year bonds with a face value of $1000 and a coupon rate of 6.5% (annual payments). The following table summarizes the yield to maturity for five-year (annual-pay) coupon corporate bonds of various ratings: Rating Yield to maturity AAA 6.20% AA 6.30% A BBB BB 6.50% 6.90% 7.50% a. Assuming the bonds will be rated AA, what will the price of the bonds be? b. How much total principal amount of these bonds must HMK issue to raise $10 million today, assuming the bonds are AA rated? (Because HMK cannot issue a fraction of a bond, assume that all fractions are rounded to the nearest whole number.) c. What must the rating of the bonds be for them to sell at par? d. Suppose that when the bonds are issued, the price of each bond is $959.54. What is the likely rating of the bonds? Are they junk bonds? Amount needed Maturity Face value Coupon rate 10,000,000.00 5 1,000.00 6.50% Contents 6-4 6-12 6-18 6-19 6-20 6-23 6-25 6-29 6-30 edy Format Painter BIU a. Av Merge & Center $ % 98-98 Conditional Format as Formatting Table Clipboard Font Alignment Number Styles A38 fx A B D E F 4 G H 1 d. Suppose that when the bonds are issued, the price of each bond is $959.54. What is the likely rating of the bonds? Are they junk bonds? 5 s Amount needed Maturity Face value Coupon rate 10,000,000.00 5 1,000.00 6.50% AAA AA BBB BB Price of bonds with various ratings a. Bond rating AA b. Number of bonds at rating AA 1,000.00 c. Rating if price is d. Rating if price is 959.54 The bonds are not junk bonds. 6-12 | Contents | 6-4 6-18 6-19 6-20 6-23 6-25 6-29 6-30 +