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Jackpot Jim's Casino is considering issuing 500 $1,000 face value bond with a 30-year maturity and a coupon rate of 7.0000% p.a. paying annual coupons. The Casino currently has a Standard & Poors A rating.

However, due to recent financial difficulties at the Casino, Standard & Poors is warning that it may downgrade the rating to BBB.

The yield on A-rated, 30-year bonds is currently 6.5000% and the yield on BBB-rated bonds is 6.9000%.

a. What is the price of these bonds if the casino maintains the A-rating? V_B = $1065.29

b.What will the price of these bonds be if the casino's bond rating is down graded to BBB? V_B = $1012.53

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92795995

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