Question: The project bond is a 10 year issue with fixed rate coupon 5.5% per annum. At the end of sixth (6 th ) year from

The project bond is a 10 year issue with fixed rate coupon 5.5% per annum. At the end of sixth (6^th) year from its issuance, the Credit Rating Agency downgrades the project bond to BB+ (non-investment grade) from BBB-. Upon the credit downgrade, investors demand a higher return of 7.5% per annum due to the weakened credit profile of the project.

Calculate the project bond price following the credit downgrade.

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