4 Andrew Industries is contemplating issuing a 30-year bond with a coupon rate of 7.17% (annual coupon payments) and aface value of $1,000. Andrew believes it can geț a rating of A from Standard & Poor's. However, due to recent financialdifficulties at the company, Standard & Poor's is warning that it may downgrade Andrew Industries' bonds to BBB. Yields onA-rated, long-term bonds are currently 6.52%, and yields on BBB-rated bonds are 6.76%.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?a. What is the price of the bond if Andrew Industries maintains the A rating for the bond issue?(Round to the nearest cent.)If Andrew maintains the A rating for the bond issue, the price of the bond is $

The market price of bonds: Bonds may or may not trade at their par value in the secondary market.…

Answered: Andrew Industries is contemplating…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter6: Fixed-income Securities: Characteristics And Valuation

Section: Chapter Questions

Problem 17P

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Andrew Industries is contemplating issuing a 30-year bond with a coupon rate of 9.03% (annual coupon payments) and a face value of $1,000. Andrew 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 Andrew Industries bonds to BBB. Yields on A-rated, long-term bonds are currently 8.53%, and yields on BBB-rated bonds are 8.93%. a. What is the price of the bond if Andrew maintains the A rating for the bond issue? b. What will the price of the bond be if it is downgraded?
Pybus, Inc. is considering issuing bonds that will mature in 21 years with an annual coupon rate of 12 percent. Their par value will be $1,000, and the interest will be paid semiannually. Pybus is hoping to get a AA rating on its bonds and, if it does, the yield to maturity on similar AA bonds is 9.5 percent. However, Pybus is not sure whether the new bonds will receive a AA rating. If they receive an A rating, the yield to maturity on similar A bonds is 10.5 percent. What will be the price of these bonds if they receive either an A or a AA rating? Question content area bottom Part 1 a. The price of the Pybus bonds if they receive a AA rating will be $enter your response here.
Pybus, Inc. is considering issuing bonds that will mature in 23years with an annual coupon rate of 9 percent. Their par value will be $1,000, and the interest will be paid semiannually. Pybus is hoping to get a AA rating on its bonds and, if it does, the yield to maturity on similar AA bonds is 7percent. However, Pybus is not sure whether the new bonds will receive a AA rating. If they receive an A rating, the yield to maturity on similar A bonds is 8 percent. What will be the price of these bonds if they receive either an A or a AA rating? The price of the Pybus bonds if they receive a AA rating will be $__________ (Round to the nearest cent.)
Pybus, Inc. is considering issuing bonds that will mature in 17 years with an annual coupon rate of 6 percent. Their par value will be $1,000, and the interest will be paid semiannually. Pybus is hoping to get a AA rating on its bonds and, if it does, the yield to maturity on similar AA bonds is 7.5 percent. However, Pybus is not sure whether the new bonds will receive a AA rating. If they receive an A rating, the yield to maturity on similar A bonds is 8.5 percent. What will be the price of these bonds if they receive either an A or a AA rating?
Pybus, Inc. is considering issuing bonds that will mature in 17 years with an annual coupon rate of 8 percent. Their par value will be $1,000, and the interest will be paid semiannually. Pybus is hoping to get a AA rating on its bonds and, if it does, the yield to maturity on similar AA bonds is 11 percent. However, Pybus is not sure whether the new bonds will receive a AA rating. If they receive an A rating, the yield to maturity on similar A bonds is 12percent. What will be the price of these bonds if they receive either an A or a AA rating? The price of the Pybus bonds if they receive a AA rating will be
Blackstone Energy is planning to issue two types of 25-year, non-callable bonds to raise a total of $6 million. First, 3,000 bonds with a 10% annual coupon rate will be sold at their $1,000 par value to raise $3 million. Second, original issue discount (OID) bonds, also with a 25-year maturity and a $1,000 par value, will be sold, but these bonds will have a nominal coupon of only 7.05%, also with annual payments. The OID bonds must be offered at a discount (i.e., below par) in order to provide investors with the same yield as the par bonds. How many OID bonds must the firm issue to raise the other $3 million? You may round your answer up or down to a whole number of bonds. Hint: Calculate the price of OID bonds (given the nominal coupon rate and yield of 10%), and divide that price into the $3 million. Your answer should be between 3150 and 4850, with no special characters.
Octopus Transit has a $1,000 par value bond outstanding with 10 years to maturity. The bond carries an annual interest payment of $104, payable semiannually, and is currently selling for $1,105. Octopus is in a 35 percent tax bracket. The firm wishes to know what the aftertax cost of a new bond issue is likely to be. The yield to maturity on the new issue will be the same as the yield to maturity on the old issue because the risk and maturity date will be similar. a. Compute the yield to maturity on the old issue and use this as the yield for the new issue. (Do not round intermediate calculations. Round the final answer to 2 decimal places.) Yield on new issue % b. Make the appropriate tax adjustment to determine the aftertax cost of debt. (Do not round intermediate calculations. Round the final answer to 3 decimal places.) Cost of debt %
Blackstone Energy is is planning to issue two types of 25-year non-callable bonds to raise a total of $6 million. First, 3,000 bonds with a 10% annual coupon rate will be sold at their $1,000 par value to raise $3 million. Second original issue discount (OID) bonds, also with a 25-year maturity and a $1,000 par value, will be sold, but these bonds will have a nominal coupon of only 6.80%, also with annual payments. The OID bonds must be offered at a discount (i.e., below par) in order to provide investors with the same yield as the par bonds. How many OID bonds must the firm issue to raise the other $3 million?You may round your answer up or down to a whole number of bonds. Hint: Calculate the price of OID bonds (given the nominal coupon rate and annual yield of 10%), and divide that price into the $3 million. Your answer should be between 3150 and 4850, with no special characters.
Too Young, Incorporated, has a bond outstanding with a coupon rate of 6.5 percent and semiannual payments. The bond currently sells for $1,933 and matures in 19 years. The par value is $2,000. What is the company's pretax cost of debt? Multiple Choice 7.38% 6.95% 3.37% 7.14% 6.82% Galvatron Metals has a bond outstanding with a coupon rate of 6.3 percent and semiannual payments. The bond currently sells for $1,919 and matures in 17 years. The par value is $2,000 and the company's tax rate is 21 percent. What is the company's aftertax cost of debt? Multiple Choice 3.35% 5.30% 4.33% 3.77% 3.13% Mojo Mining has a bond outstanding that sells for $2,201 and matures in 21 years. The bond pays semiannual coupons and has a coupon rate of 7.38 percent. The par value is $2,000. If the company's tax rate is 21 percent, what is the aftertax cost of debt? Multiple Choice 6.22% 5.13% 4.23% 6.66% 3.69% Bermuda Cruises…
McCurdy Co.'s Class Q bonds have a 12-year maturity, $1,000 par value, and a 5.75% coupon paid semiannually (2.875% each 6 months), and those bonds sell at their par value. McCurdy's Class P bonds have the same risk, maturity, and par value, but the P bonds pay a 5.75% annualcoupon. At what price should the annual payment bond sell for a bond investor to be indifferent?
Laurel, Inc., and Hardy Corp. both have 6 percent coupon bonds outstanding, with semiannual interest payments, and both are priced at par value. The Laurel, Inc., bond has two years to maturity, whereas the Hardy Corp. bond has 15 years to maturity. If interest rates suddenly rise by 2 percent, what is the percentage change in the price of these bonds? If interest rates were to suddenly fall by 2 percent instead, what would the percentage change in the price of these bonds be then?
Assets, Inc., plans to issue $8 million of bonds with a coupon rate of 11 percent, a par value of $1,000, semiannual coupons, and 20 years to maturity. The current market interest rate on these bonds is 10 percent. In one year, the interest rate on the bonds will be either 12 percent or 8 percent with equal probability. Assume investors are risk-neutral. a. If the bonds are noncallable, what is the price of the bonds today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

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