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:

-Assuming that Luther's bonds receive a AAA rating,the price of the bonds will be closest to:
A)$1021
B)$1014
C)$1000
D)$937
E)$933

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:
 
-Assuming that Luther's bonds receive a AAA rating,the price of the bonds will be closest to:
A)$1021 
B)$1014 
C)$1000 
D)$937 
E)$933

Quizplus · Accepted Answer

Bonds with a AAA rating are considered to be of the highest quality, indicating a very low risk of default. Investors are willing to accept lower yields for such bonds due to their safety. As a result, these bonds often trade at a premium to their face value, making $1021 a plausible price.

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