Use the information for the question(s)below.
Luther Industries needs to raise $25 million to fund a new office complex.The company plans on issuing ten-year bonds with a face value of $1000 and a coupon rate of 7.0% (annual payments).The following table summarizes the YTM for similar ten-year corporate bonds of various credit ratings:
-Suppose that when these bonds were issued,Luther received a price of $972.42 for each bond.What is the likely rating that Luther's bonds received?
A)AA
B)BBB
C)B

Question

Use the information for the question(s)below.
Luther Industries needs to raise $25 million to fund a new office complex.The company plans on issuing ten-year bonds with a face value of $1000 and a coupon rate of 7.0% (annual payments).The following table summarizes the YTM for similar ten-year corporate bonds of various credit ratings: 
-Suppose that when these bonds were issued,Luther received a price of $972.42 for each bond.What is the likely rating that Luther's bonds received?
A)AA 
B)BBB 
C)B

Quizplus · Accepted Answer

To find the rating of the bond, we need to find the YTM that corresponds to a price of $972.42. According to the table, the YTM for a BBB rated bond is 7.50%, which is the closest to the coupon rate of 7.0%. Therefore, Luther's bonds likely received a BBB rating.

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