Andrew Industries is contemplating issuing a 30-year bond with a coupon rate of 7.01 % (annual coupon payments) $1,000. Andrew believes it can get a rating of A from Standard & Poor's.However, due to recent financial difficulties at the company, Standard & Poor's is warning that it may downgrade Andrew Industries' bonds to BBB. Yields on A-rated, long-term bonds are currently 6.48 % and yields on BBB-rated bonds are 6.85 %
a. What is the price of the bond if Andrew Industries maintains the A rating for the bond issue?
b. What will be the price of the bond if it is downgraded?
Answer a) Price of the bond... View the full answer