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    Bond Price after Downgrade

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    A bond's credit rating provides a guide to its risk. Long-term bonds rated Aa currently offer yields to maturity of 8.2%. A-rated bonds sell at yields of 8.5%. Assume a 10-year bond with a coupon rate of 7.7% is downgraded by Moody's from Aa to A rating.

    a. Calculate the initial price. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

    Initial price $

    b. Calculate the new price. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

    New price $

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    Solution Preview

    (a) You can PV function in Excel to compute the initial price...

    Assume face value ...

    Solution Summary

    The solution uses excel function to compute bond price after a downgrade from Moody's.

    $2.19

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