Question

your firm has a credit rating of A. Notice that the credit spread for five years maturity is 83 basis point(0.83%) your firm's five year dept has an annual coupon rate of 6.3%. You see that new five year Treasury notes are being issued at par with an annual coupon rate of 2% what should be the price of your outstanding five year bonds?

Answer 1

☆ Credit Rating of a na syears Annuel coupon Rate = 6.3% Credit spread for five your materey = 0.12% ( a B ante panto * Credit spread is the difference in field between a treasury band and another debt security of same maturity but different credit quality, hence yield on deht a field on Pocasuay = 0.83% (or 83 Bant parts suunity O Botes Equation of credit spreads yield an deft security = 0.83% to 2%. 22.83% hence yTM = 2.837.p.a. Bo = Coupon (+R) to ceapon (ltre - coupon (+Rjo Bo - 6.3.1. A (1+2.83%)' 6.3%. (142.837) & 6.37. Cle2.93133 6.37 (1+2.830.5 - (Assuming face value be 100 $1 of Bend) Bo 6.34(2.83%, Syn Bo - 28.99 $ C & face value be $10 Scanned with am scattirer