Pybus, Inc. is considering issuing bonds that will mature in 21 years with an an
ID: 2744942 • Letter: P
Question
Pybus, Inc. is considering issuing bonds that will mature in 21 years with an annual coupon rate of 66 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 7 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 8 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
Explanation / Answer
Price of bond = Interest * PVAF(r,n) + Maturity value * PVF(r,n)
Price of A rated = 66*10.016 + 1000*0.1987 859.756 Price of AA rated = 66*10.856 + 1000*0.2415 957.996Related Questions
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