Solution-Credit risk of the bonds, Land'o'Toys is a

Credit risk of the bonds

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Land'o'Toys is a profitable, medium-sized, retail company. Several years ago it issued a 7 percent coupon bond, which pays interest quarterly. (Par Value is $1,000) The bond will mature in 6 years and is currently priced in the market as $1,039.44. The average yields to maturity for 6-year corporate bonds are reported in the following table by bond rating.

Bond Rating	Yield
AAA	5.40%
AA	5.70%
A	6%
BBB	6.50%
BB	7.30%
B	8.20%
CCC	9.20%
CC	10.50%
C	12%
D	14.50%

Periodically, one company will purchase another by buying all of the target firm's stock. The bonds of the target firm continue to exist. The debt obligation is assumed by the new firm. The credit risk of the bonds often changes because of this type of an event.

Reference no: EM133110907

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Credit risk of the bonds

Reference no: EM133110907

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