Explore BrainMass
Share

Bond Price after Downgrade

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 $

© BrainMass Inc. brainmass.com August 16, 2018, 4:21 pm ad1c9bdddf

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