Pybus, Inc., is considering issuing bonds that will mature in 20 years with an 8

Question

Pybus, Inc., is considering issuing bonds that will mature in 20 years with an 8 percent annual coupon rate. Their par value will be $1000, 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 7.5 percent. However, Pybus is not sure whether the new bonds will receive a AA rating. If they receive a A rating, the yield to maturity on similar A bonds is 8.5 percent. What will be the price of these bonds if they receive either a A or AA rating?

Explanation / Answer

Pybus Inc details Amt $ Par value bond                        1,000 Annual cpoupon rate 7% Half yearly interest amt 35 YTM for AA rating 8% Half yearly discounting factor for AA rating 4% YTM for A rating 9% Half yearly discounting factor for A rating 4.50% Bond price calculation Period Coupon+Maturity Cash Flow Half yearly discounting factor for AA rating PV of cash flow for AA rating Half yearly discounting factor for A rating PV of cash flow for A rating 1 35                       0.962                    33.65                0.957         33.49 2 35                       0.925                    32.36                0.916         32.05 3 35                       0.889                    31.11                0.876         30.67 4 35                       0.855                    29.92                0.839         29.35 5 35                       0.822                    28.77                0.802         28.09 6 35                       0.790                    27.66                0.768         26.88 7 35                       0.760                    26.60                0.735         25.72 8 35                       0.731                    25.57                0.703         24.61 9 35                       0.703                    24.59                0.673         23.55 10 35                       0.676                    23.64                0.644         22.54 11 35                       0.650                    22.74                0.616         21.57 12 35                       0.625                    21.86                0.590         20.64 13 35                       0.601                    21.02                0.564         19.75 14 35                       0.577                    20.21                0.540         18.90 15 35                       0.555                    19.43                0.517         18.09 16 35                       0.534                    18.69                0.494         17.31 17 35                       0.513                    17.97                0.473         16.56 18 35                       0.494                    17.28                0.453         15.85 19 35                       0.475                    16.61                0.433         15.17 20 35                       0.456                    15.97                0.415         14.51 21 35                       0.439                    15.36                0.397         13.89 22 35                       0.422                    14.77                0.380         13.29 23 35                       0.406                    14.20                0.363         12.72 24 35                       0.390                    13.65                0.348         12.17 25 35                       0.375                    13.13                0.333         11.65 26 35                       0.361                    12.62                0.318         11.14 27 35                       0.347                    12.14                0.305         10.66 28 35                       0.333                    11.67                0.292         10.20 29 35                       0.321                    11.22                0.279           9.77 30 35                       0.308                    10.79                0.267           9.35 31 35                       0.296                    10.38                0.256           8.94 32 35                       0.285                      9.98                0.244           8.56 33 35                       0.274                      9.59                0.234           8.19 34 35                       0.264                      9.22                0.224           7.84 35 35                       0.253                      8.87                0.214           7.50 36 35                       0.244                      8.53                0.205           7.18 37 35                       0.234                      8.20                0.196           6.87 38 1035                       0.225                  233.17                0.188      194.32                  903.16      819.50 So Bond Price for AA rating $                  903.16 Bond Price for A rating $                  819.50

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.