Lloyd Industries raised $28 million in order to upgrade its roller kiln furnace for the production of ceramic tile.The company funded this by issuing 15-year bonds with a face value of $1000 and a coupon rating of 6.2%,paid annually.The above table shows the yield to maturity for similar 15-year corporate bonds of different ratings issued at the same time.When Lloyd Industries issued their bonds,they received a price of $962.63.Which of the following is most likely to be the rating these bonds received?
A)AA
B)A
C)BBB
D)BB
E)AAA

Question

Lloyd Industries raised $28 million in order to upgrade its roller kiln furnace for the production of ceramic tile.The company funded this by issuing 15-year bonds with a face value of $1000 and a coupon rating of 6.2%,paid annually.The above table shows the yield to maturity for similar 15-year corporate bonds of different ratings issued at the same time.When Lloyd Industries issued their bonds,they received a price of $962.63.Which of the following is most likely to be the rating these bonds received?
A)AA 
B)A 
C)BBB 
D)BB 
E)AAA

Quizplus · Accepted Answer

To determine the bond rating for Lloyd Industries, we need to compare the yield to maturity (YTM) for their bonds ($962.63 price) with the YTM for bonds of different ratings issued at the same time. According to the table, the YTM for BBB-rated bonds is 6.5%, which is the closest to the coupon rating of 6.2%. Therefore, it is most likely that Lloyd Industries' bonds received a BBB rating.

Lloyd Industries Raised $28 Million in Order to Upgrade Its