Andrew Industries is contemplating issuing a 30-vear bond with a coupon rate of 7.13% (annual coupon payments) and a face value of $1,000. Andrew believes it can get a rating of A from Standard & Poor's. However, due to recent financial difficulties at the company, Standard & Poor's is warning that it may downgrade AndrewIndustries' bonds to BBB. Yields on A-rated, long-term bonds are currently 6.49%, and yields on BBB-rated bonds are 6.87%.a. What is the price of the bond if Andrew Industries maintains the A rating for the bond issue?b. What will be the price of the bond if it is downgraded?a. What is the price of the bond if Andrew Industries maintains the A rating for the bond issue?If Andrew maintains the A rating for the bond issue, the price of the bond is S. (Round to the nearest cent.)b. What will be the price of the bond if it is downgraded?If it is downgraded, the new bond's price will be $. (Round to the nearest cent.)

Bond valuation is an important technique of securities and investment management. it determines the…

ndrew Industries is contemplating issuing a 30-year bond with a coupon rate of 7.13% (annual coupon payments) and a face value of $1,000. Andrew believes it can get a rating of A from Standard & Poor's. However, due to recent financial dificulties at the company, Standard & Poor's is warning that it may downgrade And ndustries' bonds to BBB. Yields on A-rated, long-term bonds are currently 6.49%, and yields on BBB-rated bonds are 6.87%. What is the price of the bond if Andrew Industries maintains the A rating for the bond issue? What will be the price of the bond if it is downgraded? .What is the price of the bond if Andrew Industries maintains the A rating for the bond issue? Andrew maintains the A rating for the bond issue, the price of the bond is S (Round to the nearest cent.) What will be the price of the bond if it is downgraded? it is downgraded, the new bond's price will be $ (Round to the nearest cent.)

ndrew Industries is contemplating issuing a 30-year bond with a coupon rate of 7.13% (annual coupon payments) and a face value of $1,000. Andrew believes it can get a rating of A from Standard & Poor's. However, due to recent financial dificulties at the company, Standard & Poor's is warning that it may downgrade And ndustries' bonds to BBB. Yields on A-rated, long-term bonds are currently 6.49%, and yields on BBB-rated bonds are 6.87%. What is the price of the bond if Andrew Industries maintains the A rating for the bond issue? What will be the price of the bond if it is downgraded? .What is the price of the bond if Andrew Industries maintains the A rating for the bond issue? Andrew maintains the A rating for the bond issue, the price of the bond is S (Round to the nearest cent.) What will be the price of the bond if it is downgraded? it is downgraded, the new bond's price will be $ (Round to the nearest cent.)

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Andrew Industries is contemplating issuing a 30-year bond with a coupon rate of 4.35% (annual coupon payments) and a face value of $1,000. Andrew believes it can get a rating of A from Standard and Poor's. However, due to recent financial difficulties at the company, Standard and Poor's is warning that it may downgrade Andrew Industries bonds to BBB. Yields on A-rated long-term bonds are currently 3.85%, and yields on BBB-rated bonds are 4.25%. a. What is the price of the bond if Andrew maintains the A rating for the bond issue? b. What will the price of the bond be if it is downgraded?
Andrew Industries is contemplating issuing a 30-year bond with a coupon rate of 7.15% (annual coupon payments) and a face value of $1,000. Andrew believes it can get a rating of A from Standard & Poor's. However, due to recent financial difficulties at the company, Standard & Poor's is warning that it may downgrade Andrew Industries' bonds to BBB. Yields on A-rated, long-term bonds are currently 6.59%, and yields on BBB-rated bonds are 6.84%. a. What is the price of the bond if Andrew Industries maintains the A rating for the bond issue? b. What will be the price of the bond if it is downgraded?
Andrew Industries is contemplating issuing a 30-year bond with a coupon rate of 5.09% (annual coupon payments) and a face value of $1,000. Andrew believes it can get a rating of A from Standard and Poor's. However, due to recent financial difficulties at the company, Standard and Poor's is warning that it may downgrade Andrew Industries bonds BBB. Yields on A-rated, long-term bonds are currently 4.59%, and yields on BBB-rated bonds are 4.99%. a. What is the price of the bond if Andrew maintains the A rating for the bond issue? b. What will the price of the bond be if it is downgraded?
Gronseth Drywall Systems, Inc., is in discussions with its investment bankers regarding the issuance of new bonds. The investment banker has informed the firm that different maturities will carry different coupon rates and sell at different prices. The firm must choose among several alternatives. In each case, the bonds will have a $1,000 par value and flotation costs will be $30 per bond. Calculate the before-tax cost of financing with the following alternative. Coupon rate Time to maturity Premium or discount 17 years The before-tax cost of debt is nothing%. (Round to two decimal places.) 10% -$200
Andrew Industries is contemplating issuing a 30-year bond with a coupon rate of 7 18% (annual coupon payments) and a face value of $1,000 Andrew believes it can get a rating of A from Standard & Poor's However, due to recent financial cues at the company, Standard & Poor's is waning that it may downgrade Andrew industres bonds to 608 Yields on Araled, kong tem bonds are currendy 6 49% and yelds on BBB-rated bonds are 5.82% Wha What will be the price of the bond e price of the bond Andrew lodusies martans the Arating for the bond downgrade What is the price of the bond if Andrew induties mariens Pe Arating for the bend Andre main the Araling for the bond issue, the price of the bond is found to the nearest cent)
Access Ltd is financing a new investment and was previously unsuccessful to secure a similar interest rate as they had with their previous debt from their local Bank. Given their AAA credit rating, they instead decided to issue 5000 units of a 10-year bond to fund the investment. Coupon rate is set at 8% per annum and will be paid quarterly. The face value of one of the bonds is $1,000. The estimated yield for similar bonds of comparable risk rating is 12% per annum. Determine the market price of the one of the bonds.
Gronseth Drywall Systems, Inc., is in discussions with its investment bankers regarding the issuance of new bonds. The investment banker has informed the firm that different maturities will carry different coupon rates and sell at different prices. The firm must choose among several alternatives. In each case, the bonds will have a $1,000 par value and flotation costs will be $30 per bond. Calculate the before-tax cost of financing with the following alternative. coupon rate 9% time to maturity 16 years premium or discount $250
Octopus Transit has a $1,000 par value bond outstanding with 10 years to maturity. The bond carries an annual interest payment of $104, payable semiannually, and is currently selling for $1,105. Octopus is in a 35 percent tax bracket. The firm wishes to know what the aftertax cost of a new bond issue is likely to be. The yield to maturity on the new issue will be the same as the yield to maturity on the old issue because the risk and maturity date will be similar. a. Compute the yield to maturity on the old issue and use this as the yield for the new issue. (Do not round intermediate calculations. Round the final answer to 2 decimal places.) Yield on new issue % b. Make the appropriate tax adjustment to determine the aftertax cost of debt. (Do not round intermediate calculations. Round the final answer to 3 decimal places.) Cost of debt %
Russell Container Corporation has a $1,000 par value bond outstanding with 30 years to maturity. The bond carries an annual interest payment of $105 and is currently selling for $880 per bond. Russell Corp. is in a 25 percent tax bracket. The firm wishes to know what the aftertax cost of a new bond issue is likely to be. The yield to maturity on the new issue will be the same as the yield to maturity on the old issue because the risk and maturity date will be similar. a. Compute the yield to maturity on the old issue and use this as the yield for the new issue. b. Make the appropriate tax adjustment to determine the aftertax cost of debt.
Microsoft is considering issuing bonds that will mature in 20% with an 8% annual coupon rate. The par value is $ 1,000 and the interest will be paid semi-annually. Microsoft si hoping to get an AA credit rating on the bonds but is not sure of this will happen. If it does, the yield to maturity on similar AA rated bonds is 7.5%. However, if the bonds only receive an A rating the yield to maturity on similar A rated bonds is 8.5%. What will be the price of these bonds if they receive an A or AA rating? a. AA = $ 1,000 and A = $1,200 b. AA = $ 1,051.38 and A = $ 952.31 c. AA = $ 952.31 and A = $ 1,051.38 d. AA = $ 1,750 and A = $ 1,850
Taussig Corp.'s bonds currently sell for P1,150. They have a 6.75% annual coupon rate and a 15-year maturity, but they can be called in 6 years at P1,067.50. Assume that no costs other than the call premium would be incurred to call and refund the bonds, and also assume that the yield curve is horizontal, with rates expected to remain at current levels on into the future. Under these conditions, what rate of return should an investor expect to earn if he or she purchases these bonds, the YTC or the YTM?
Caspian Sea Drinks needs to raise $35.00 million by issuing bonds. It plans to issue a 14.00 year semi-annual pay bond that has a coupon rate of 5.17%. The yield to maturity on the bond is expected to be 4.72%. How many bonds must Caspian Sea issue? (Note: Your answer may not be a whole number. In reality, a company would not issue part of a bond.)

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