.Face value= future value= $1,000
Time= 30 years
Coupon rate= 7.11%
Coupon payment= 0.0711*1,000= $71.10
Yield to maturity= 6.45%
The price of the bond is calculated by computing the present value.
Enter the below in a financial calculator to compute the present value:
FV= 1,000
N= 30
I/Y= 6.45
PMT= 71.10
Press the CPT key and PV to compute the present value.
The value obtained is 1,086.64.
Therefore, the price of the bond is $1,086.64
$1,087 if Andrew maintains a A rating.
b.Face value= future value= $1,000
Time= 30 years
Coupon rate= 7.11%
Coupon payment= 0.0711*1,000= $71.10
Yield to maturity= 6.84%
The price of the bond is calculated by computing the present value.
Enter the below in a financial calculator to compute the present value:
FV= 1,000
N= 30
I/Y= 6.84
PMT= 71.10
Press the CPT key and PV to compute the present value.
The value obtained is 1,034.05.
Therefore, the price of the bond is $1,034.05$1,034
if it the bond is downgraded.
In case of any query, kindly comment on the solution.
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