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Gnom [1K]
3 years ago
15

Wyatt Oil is contemplating issuing a 20-year bond with semiannual coupons, a coupon rate of 7%, and a face value of $1000. Wyatt

Oil believes it can get a BBB rating from Standard and Poor's for this bond issue. If Wyatt Oil is successful in getting a BBB rating, then the issue price for these bonds would be closest to: $800 $891 $901 $1,000 $1,107
Business
1 answer:
enyata [817]3 years ago
5 0

Complete question:

Security Term (years) Yield (%)

Treasury 2 0 5.5%

AAA Corporate 2 0 7.0%

BBB Corporate 20 8.0%

B Corporate 2 0 9.6%

Wyatt Oil is contemplating issuing a 20-year bond with semiannual coupons, a coupon rate of  7%, and a face value of $1000. Wyatt Oil believes it can get a BBB rating from Standard and  Poor's for this bond issue. If Wyatt Oil is successful in getting a BBB rating, then the issue price  for these bonds would be closest to:

A) $891 B) $901 C) $1,000 D) $800

Answer:

If Wyatt Oil is successful in getting a BBB rating, then the issue price  for these bonds would be closest to:  $901

Solution:

Given,

FV = 1000,

N = 40,

I = 4,

PMT = 35

Compute PV ,

PV = FV \frac{1}{( 1+r)^{n} }

PV = 901.04

If Wyatt Oil is successful in getting a BBB rating, then the issue price for these bonds would be closest to: $901

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