Question

deal Industries is contemplating issuing a 30-year bond with a coupon rate of 7% and a face value of $1,000. Assume coupon payments are annual. Ideal 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 Ideal Industries bonds to BBB. Yields on A-rated, long-term bonds are currently 6.5%, and yields on BBB-rated bonds are 6.9%. (1) What is the price of the bond if Ideal maintains the A rating for the bond issue? (Please keep two digits after the decimal point. e.g. 1234.56)

          deal Industries is contemplating issuing a 30-year bond with a coupon rate of 7% and a face value of $1,000. Assume coupon payments are annual. Ideal 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 Ideal Industries bonds to BBB. Yields on A-rated, long-term bonds are currently 6.5%, and yields on BBB-rated bonds are 6.9%.
      (1) What is the price of the bond if Ideal maintains the A rating for the bond issue? (Please keep two digits after the decimal point. e.g. 1234.56)

Added by Jonathan A.

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