(Bond valuation) Pybus, Inc. is considering issuing bonds that will mature in 20 years with an annual coupon rate of 8 percent. Their par value will be $1 comma 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 7.5 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 8.5 percent. What will be the price of these bonds if they receive either an A or a AA rating?

Price of A rating is $952.31

Price of AA rating is $1,051.38

Explanation:

The price of the bond can be computed using the pv formula in excel which is stated thus:

=-pv(rate,nper,pmt,fv)

rate is the semiannual yield to maturity on the bond:

A rating has 4.25% semiannual yield (8.5%/2)

AA rating  has 3.75% semiannual yield (7.5%/2)

nper is the number of coupon interest payable by the bonds which 2o years multiplied by 2 i.e 40 coupon interests for both types of bonds.

pmt is the amount of semiannual coupon interest which is $1000*8%/2=$40

fv is the face value of the bond of $1000

A rating Price

=-pv(4.25%,40,40,1000)=$952.31  

AA rating price

=-pv(3.75%,40,40,1000)=$1,051.38  

whole quiz

1. the sum of all activities involved in getting high-quality products into the marketplace

2.operations

3. the principle of looking at the supply chain as a whole in order to improve the overall flow through the system.

4. produced; performed

5. activities producing tangible products, such as radios, newspapers, buses, and textbooks.

6. activities producing intangible and tangible products, such as entertainment, transportation, and education.

7.   customer focus

8. analyzing a competitor's products to identify desirable improvements

9. the systematic direction and control of the processes that transform resources into finished projects that create value for and provide benefits to consumers.

10. operation management.

your welcome leave a rate and a < 3