A bond's credit rating provides a guide to its price. Assume Aaa bonds yield 4.8% and Baa bonds yield 5.8%. Assume a 10% five-year bond with annual coupons and a face value of $1,000. (Do not round intermediate calculations. Round your answers to 2 decimal places.)
a. What is the bond's price if it is rated as Aaa?
Bond price $
b. What is the bond's price if it is rated as Baa?
Bond price $
a. What is the bond's price if it is rated as Aaa?
PV factor working
=(1-(1+r)^n-1)/r
=+(1-(1+4.8%)^(-5))/4.8%=4.3535
(1+r)^n/r
=+1/(1+4.8%)^5=.7910
b
b. What is the bond's price if it is rated as Baa?
PV factor working
=(1-(1+r)^n-1)/r
=+(1-(1+5.8%)^(-5))/5.8%=4.2354
(1+r)^n/r
=+1/(1+5.8%)^5=.7543
A bond's credit rating provides a guide to its price. Assume Aaa bonds yield 4.8% and...
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