Question

(Bond valuation) 

 ​Pybus, Inc. is considering issuing bonds that will mature in 18 years with an annual coupon rate of 9 percent. Their par value will be ​$1,000​, and the interest will be paid 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 percent. ​ However, Pybus is not sure whether the new bonds will receive a AA rating. If they receive an A​ rating, the yield to maturity on similar A bonds is 12 percent.

What will be the price of these bonds if they receive either an A or a AA​ rating?

a. The price of the Pybus bonds if they receive a AA rating will be ​$

b. The price of the Pybus bonds if they receive a A rating will be ​$

​ (Round to the nearest​ cent.)

Answer 1