Please choose lower or higher in both places... ABC Company and XYZ Company are rated AA...
Please choose lower or higher in both places...
ABC Company and XYZ Company are rated AA and "BBB", respectively, by the credit rating agency Standard & Poor's (i.e., XYZ has more credit risk for an investor). If the XYZ Company was issuing bonds at par that required a yield or interest of 9.00% based on market conditions, an investor considering buying bonds to be issued by ABC Company would likely require a (LOWER OR HIGHER) interest rate or yield given the (LOWER OR HIGHER) risk of the ABC bonds Vs. the XYZ bonds.
Homework Answers
Rating of AA indicates High Credit quality of company ABC
Rating of BBB indicates Medium Credit quality of company XYZ .
required interest rate on, ABC bond < XYZ Bond
Risk on ,ABC bond < XYZ Bond.
If the XYZ Company was issuing bonds at par that required a yield or interest of 9.00% based on market conditions, an investor considering buying bonds to be issued by ABC Company would likely require a (LOWER ) interest rate or yield given the (LOWER ) risk of the ABC bonds Vs. the XYZ bonds.
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Please choose lower or higher in both places...
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payments). The following table summarizes the yield to maturity
for five-year (annual-pay) coupon corporate bonds of various
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3.13.1
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4.34.3
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HMK Enterprises would like to raise $14 million to invest in
capital expenditures. The company plans to issue five-year bonds
with a face value of $1,000 and a coupon rate of 3.5% (annual
payments). The following table summarizes the yield to maturity
for five-year (annual-pay) coupon corporate bonds of various
ratings.
Rating
AAA
AA
A
BBB
BB
YTM (%)
3.03.0
3.13.1
3.53.5
3.93.9
4.34.3
a. Assuming the bonds will be rated AA, what will the price of
the AA-rated bonds...
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Please solve.
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