HMK Enterprises would like to raise $10.0 million for to invest in capital expenditures. The company plans to issue five year bonds with a face value of $1000 and a coupon rate of 6.53% (annual payments) The following table summarizes the yield to maturity for five-year (annual payments) coupon corporate bonds of various ratings:
Rating AAA AA A BBB BB
YTM 6.19% 6.31% 6.53% 6.96% 7.58%
a. Assuming the bonds will be rated AA what will be the price of the bonds?
b How much of the principal of these bonds must HMK issue to raise $10.0 million today, assuming the bonds are rated AA?
c. What must the rating of the bonds for them to sell at par?
d. Suppose that when the bonds are issued, the price of each bond is $957.61 What is the likely rating of the bonds? Are they junk bonds?
a. Assuming the bonds will be rated AA, what will be the price of the bonds?
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