Pybus, Inc is considering issuing bonds that will mature in 24 years with an ann

Question

Pybus, Inc is considering issuing bonds that will mature in 24 years with an annual coupon rate of 8 percent. Their par value will be dollar 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 10 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 11 percent. What will be the price of these bonds if they receive either an A or a AA rating?

Explanation / Answer

a)

b)

1 Face value (FV) $                                         1,000 2 Coupon rate 8.00% 3 Number of compounding periods per year 2 4 = 1*2/3 Interest per period (PMT) $                                         40.00 5 Number of years to maturity 24 6 = 3*5 Number of compounding periods till maturity (NPER) 48 7 Market rate of return/Required rate of return 10.00% 8 = 7/3 Market rate of return/Required rate of return per period (RATE) 5.00% Bonds price PV(RATE,NPER,PMT,FV)*-1 Bonds price $                                       819.23

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