Computation of price of the bond

Reference no: EM1314985

Luther Industries needs to raise $25 million to fund a new office complex. The company plans on issuing ten-year bonds with a face value of $1000 and a coupon rate of 7.0% (annual payments). The following table summarizes the YTM for similar ten-year corporate bonds of various credit ratings:

Rating	AAA	AA	A	BBB	BB
YTM	6.70%	6.80%	7.00%	7.40%	8.00%

A. Assuming that Luther\'s bonds receive a AAA rating, what should be the price of the bonds?

B. Assuming that Luther\'s bonds receive a AAA rating, the number of bonds that Luther must issue to raise the needed $25 million (round Up)?

C. What rating must Luther receive on these bonds if they want the bonds to be issued at par?

D. Suppose that when these bonds were issued, Luther received a price of $972.42 for each bond. What is the likely rating that Luther\'s bonds received?

Reference no: EM1314985

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