D
Question 8
0.5 pts
Your company (rated A3) just issued new debt with 8 years to maturity this morning. In the middle of the day, ACQUIRER
CORP (rated Baa2) announced a takeover offer for your company. Market participants thought the deal would go through
and existing bonds issued by your company would get re-rated to Baa2.
The coupon rate of your company's newest bond issue was set at 3.0 %, but yields on similar maturity corporate bonds with
an Baa2 rating are currently at 4.0%.
Assuming the new bond will make semi-annual coupon payments, what price will the bond likely trade at after the
downgrade? Enter your answer with at least 4 decimal places. Do not include a negative sign. Assume 100 face amount.