A 1000 face value corporate bond with a 65 percent coupon, Financial Management

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A 1000 face value corporate bond with a 65 percent coupon

A $1,000 face value corporate bond with a 6.5 percent coupon (paid semiannually) has 10 years left to maturity. It has had a credit rating of BBB and a yield to maturity of 7.2 percent. The firm has recently gotten into some trouble and the rating agency is downgrading the bonds to BB. The new appropriate discount rate will be 8.5 percent. What will be the change in the bond’s price in dollars and percentage terms?

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Financial Management: A 1000 face value corporate bond with a 65 percent coupon

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