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???(Bond valuation) ?Pybus, Inc. is considering issuing bonds that will mature in 22 years with an...

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???(Bond valuation) ?Pybus, Inc. is considering issuing bondsthat will mature in 22 years with an annual coupon rate of 12percent. Their par value will be ?$1,000?, and the interest will bepaid semiannually. Pybus is hoping to get a AA rating on its bonds?and, if it? does, the yield to maturity on similar AA bonds is 11.5percent. ? However, Pybus is not sure whether the new bonds willreceive a AA rating. If they receive an A? rating, the yield tomaturity on similar A bonds is 12.5 percent. What will be the priceof these bonds if they receive either an A or a AA? rating? a. Theprice of the Pybus bonds if they receive a AA rating will be ?$

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4.0 Ratings (665 Votes)

For AA rating

                  K = Nx2
Bond Price =? [(Semi Annual Coupon)/(1 + YTM/2)^k]     +   Par value/(1 + YTM/2)^Nx2
                   k=1
                  K =22x2
Bond Price =? [(12*1000/200)/(1 + 11.5/200)^k]     +   1000/(1 + 11.5/200)^22x2
                   k=1
Bond Price = 1039.76

For A rating

                  K = Nx2
Bond Price =? [(Semi Annual Coupon)/(1 + YTM/2)^k]     +   Par value/(1 + YTM/2)^Nx2
                   k=1
                  K =22x2
Bond Price =? [(12*1000/200)/(1 + 12.5/200)^k]     +   1000/(1 + 12.5/200)^22x2
                   k=1
Bond Price = 962.78

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???(Bond valuation) ?Pybus, Inc. is considering issuing bondsthat will mature in 22 years with an annual coupon rate of 12percent. Their par value will be ?$1,000?, and the interest will bepaid semiannually. Pybus is hoping to get a AA rating on its bonds?and, if it? does, the yield to maturity on similar AA bonds is 11.5percent. ? However, Pybus is not sure whether the new bonds willreceive a AA rating. If they receive an A? rating, the yield tomaturity on similar A bonds is 12.5 percent. What will be the priceof these bonds if they receive either an A or a AA? rating? a. Theprice of the Pybus bonds if they receive a AA rating will be ?$

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