1. Suppose firm XYZ is rated as Caa by Moody's. They issue a three year bond, with annual payments and coupon rate of 7%

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1 Suppose Firm Xyz Is Rated As Caa By Moody S They Issue A Three Year Bond With Annual Payments And Coupon Rate Of 7 1 (60.9 KiB) Viewed 17 times

1. Suppose firm XYZ is rated as Caa by Moody's. They issue a three year bond, with annual payments and coupon rate of 7%, Face Value of $100 and price of $105. Use a recovery rate of 60%. Use Moody's default rate by rating found in the last page. (a) Write the equation you use to find the YTM. Solution: The YTM is the discount rate that satisfies the following equality, 7 105 = х TYTM (1-a + ) + 100 (1 + түтм)3 (1+түтм)3 (b) Make a tree analysis of the bond. Solution: We need to get the default probability from the Moody's matrix. 19.92B +$60 -$105 9.47% B +$60 80.18% NB +$7 5.49% B +$60 90.55% NB +$7 94.5%NB +$7 + $100