Bond risk a bonds credit rating provides a guide to its, Financial Management

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Bond risk a bonds credit rating provides a guide to its

Bond Risk. A bond's credit rating provides a guide to its risk. Long-term bonds rated AA currently offer yields to maturity of 7.5% EAR. A-rated bonds sell at yields of 7.8% EAR. If a 10-year bond with a cou- pon rate of 7%, paid semi-annually, is downgraded by DBRS from AA to A rating, calculate the likely effect on the bond price.

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