Andrew Industries is contemplating issuing a 30?-year bond with a coupon rate of 7.12% ?(annual coupon? payments) and a face value of $1,000. Andrew believes it can get a rating of A from Standard? & Poor's.? However, due to recent financial difficulties at the?company, Standard? & Poor's is warning that it may downgrade Andrew? Industries' bonds to BBB. Yields on? A-rated, long-term bonds are currently 6.57%?, and yields on? BBB-rated bonds are 6.87%.
a. What is the price of the bond if Andrew Industries maintains the A rating for the bond? issue?
b. What will be the price of the bond if it is? downgraded?