A corporate bond with an 8.5 percent coupon has 10 years left to maturity. It has had a credit rating of A and a yield to maturity of 10 percent. The firm has recently gotten into some trouble and the rating agency is downgrading the bonds to BBB. The new appropriate discount rate will be 11.5 percent. What will be the change in the bond's price in dollars? Assume interest payments are paid semiannually and par value is $1,000.

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The correct answer is A because the price of the bond will decrease as the discount rate increases. The new price of the bond can be calculated using the following formula:Bond Price = (C / r) * [1 - (1 + r)^-n] + (FV / (1 + r)^n)where:C = coupon paymentr = discount raten = number of periods to maturityFV = face valueIn this case, the coupon payment is $42.50 (8.5% * $1,000 / 2), the discount rate is 11.5%, the number of periods to maturity is 20 (10 years * 2), and the face value is $1,000.Plugging these values into the formula, we get:Bond Price = (42.50 / 0.115) * [1 - (1 + 0.115)^-20] + (1000 / (1 + 0.115)^20)= $917.87The original price of the bond can be calculated using the same formula, but with a discount rate of 10%.Bond Price = (42.50 / 0.10) * [1 - (1 + 0.10)^-20] + (1000 / (1 + 0.10)^20)= $1000.00Therefore, the change in the bond's price is:$1000.00 - $917.87 = -$82.13

A Corporate Bond with an 8