Please answer and A & B and include inputs in fincial calculator Andrew Industri
ID: 2815156 • Letter: P
Question
Please answer and A & B and include inputs in fincial calculator
Andrew Industries is contemplating issuing a 30-year bond with a coupon rate of 5.71% 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 5.21%, and yields on BBB-rated bonds are 5.61%. 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? a. What is the price of the bond if Andrew maintains the A rating for the bond issue? The price of the bond maintaining the A rating is $ (Round to the nearest cent)Explanation / Answer
Caluculation of bond price
BOND = C*{1-[1/(1+i)n]} / i + M/(1+i)n where c = coupon payment i = intrest payment M = maturity value n = no.of payments
= 57.10*{1-[1/(1+0.521)30]} / 0.521 + 1000/(1+0.521)30