A bonds credit rating provides a guide to its price. In early 2012, Aaa bonds...
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A bonds credit rating provides a guide to its price. In early 2012, Aaa bonds yield 5.15% and Baa bonds yield 5.85%. If some bad news causes a five-year bond with a coupon rate of 5% paid annually to be unexpectedly downrated from AAA to BBB.
Critically discuss what would be the effect on the bond price with step-by-step calculation, formula, and an explanation?
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