What will happen to the price of a single bond

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Question - Grace executives have now decided to introduce an organic line of products, starting with juice and blended juice. This new line will become the company's highest strategic priority for the next two years. The introduction of certified organic products will be expensive. Preliminary estimates indicate that Grace will need to invest $80 million in production and processing facilities. The company hopes to finance the expansion by using $30 million of its own liquid assets and $50 million in new debt in the form of bonds with a maturity of twenty years. Grace expects the bonds to receive a rating of Aa1 or better from Moody's.

For all questions, assume a par value is $1,000 and semiannual bond interest payments.

Suppose Grace offers a coupon rate of 6% on its twenty-year bonds, expecting to sell the bonds at par. What will happen to the price of a single bond with a par value of $1,000 if the required bond yield unexpectedly falls to 5% or rises to 7%?

Reference no: EM132532206

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