Question

A corporate bond with a 5 percent coupon has 10 years left to maturity. It has a credit rating of BBB and a yield to maturity of 8.0 percent. Recently, the firm has gotten into some trouble and the rating agency is downgrading the firm’s bonds to BB. The new appropriate discount rate will be 9 percent. What will be the change in the bond's price, in dollars? Assume interest payments are paid semi-annually and par value is $1,000. (Round your answer to 2 decimal places. Do not include a dollar sign. If the price decreases, use a negative "-" sign. If the price increases, use a "+" sign.)

Answer 1

$56.31

Explanation:

The computation of change in the bond's price, in dollars is presented with the help of a spreadsheet that has been attached.

Price at BBB ratings = $796.15

Price at BB ratings = $739,84

Change in bond's price is come from

= $796.15 - $739.84

= $56.31

Hence, the change in the bond price is $56.30 and the same is to be considered