Andrew Industries is contemplating issuing a​ 30-year bond with a coupon rate of 9.03% ​(annual coupon​ payments) and a face value of $1,000. Andrew believes it can get a rating of A from Standard and​ Poor's. However, due to recent financial difficulties at the​ company, Standard and​ Poor's is warning that it may downgrade Andrew Industries bonds to BBB. Yields on​ A-rated, long-term bonds are currently 8.53%​, and yields on​ BBB-rated bonds are 8.93%. a. What is the price of the bond if Andrew maintains the A rating for the bond​ issue? b. What will the price of the bond be if it is​ downgraded?

Essentials Of Investments
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ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
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Chapter1: Investments: Background And Issues
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Andrew Industries is contemplating issuing a​ 30-year bond with a coupon rate of 9.03% ​(annual coupon​ payments) and a face value of $1,000. Andrew believes it can get a rating of A from Standard and​ Poor's. However, due to recent financial difficulties at the​ company, Standard and​ Poor's is warning that it may downgrade Andrew Industries bonds to BBB. Yields on​ A-rated, long-term bonds are currently 8.53%​, and yields on​ BBB-rated bonds are 8.93%.

a. What is the price of the bond if Andrew maintains the A rating for the bond​ issue?

b. What will the price of the bond be if it is​ downgraded?

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