A bond%u2019s credit rating provides a guide to its risk. Long-term bonds rated

Question

A bond%u2019s credit rating provides a guide to its risk. Long-term bonds rated Aa currently offer yields to maturity of 9.1%. A-rated bonds sell at yields of 9.4%. Assume a 10-year bond with a coupon rate of 8.6% is downgraded by Moody%u2019s from Aa to A rating.

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

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

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

Explanation / Answer

a $96.805

b $94.955

Assuming cupon payment are annual

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