ybus, Inc. is considering issuing bonds that will mature in 15 years 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 12 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 13 percent. What will be the price of these bonds if they receive either an A or a AA rating?
ybus, Inc. is considering issuing bonds that will mature in 15 years 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 12 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 13 percent. What will be the price of these bonds if they receive either an A or a AA rating?
Chapter6: Fixed-income Securities: Characteristics And Valuation
Section: Chapter Questions
Problem 16P
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Question
Pybus, Inc. is considering issuing bonds that will mature in
15
years 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
12
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
13
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
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