Question

 ​Pybus, Inc. is considering issuing bonds that will mature in 25 years with an annual coupon rate of 11 percent. Their par value will be $1000 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 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 percent. What will be the price of these bonds if they receive either an A or a AA​rating?

1- The price of the Pybus bonds if they receive a AA rating will be ( )

2- The price of the Pybus bonds if they receive an A rating will be ( )

Answer 1

Price=Coupon rate*Par value/yield*(1-1/(1+yield/2)^(2*t))+Par value/(1+yield/2)^(2*t)

1.
=11%*1000/9%*(1-1/1.045^50)+1000/1.045^50=1197.62007778541

2.
=11%*1000/10%*(1-1/1.05^50)+1000/1.05^50=1091.27962730276