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 $
(a) You can PV function in Excel to compute the initial price...
Assume face value ...
The solution uses excel function to compute bond price after a downgrade from Moody's.