Question 4 (10 points) A firm with an AA-rating plans to issue one million units of a 10 year-4% bond with face value $100. After the financial crisis this firm is downgraded to a B-rating. The yield curve increases 0.2% per year. The yield for year 1 is y=1%, for year 2 is y2=1.2%, y3=1.4% and so on and y1o=2.8%. The default spreads are given in the table below. (a) What is the initial amount (before downgrading the firm wants to raise? [2p] (b) How How much can this now B-rated firm raise? [2p] (C) If the firm wants to raise the planned amount, how many more bonds does it issue? [3p] (d) What is the additional interest payment per year the firm has to pay? [3p] Rating Default spread AAA AA A+ A A- BBB BB+ BB B+ 0.20% 0.40% 0.60% 0.80% 1.00% 1.50% 2.00% 2.50% 3.00% 3.50% 4.50% 8.00% 10.00% 12.00% 20.00% B- CCC CC