Please need help with following question
Consider corporate bonds of two companies namely HR Inc and LR Inc with $1000 face value. Both the bonds pays a coupon of $50 and has maturity of 3 years. Moody’s ratings agency rate LR Inc as ‘Aaa’ whereas HR Inc as ‘C’. Your assessment of risk suggests that a ‘Aaa’ bond carries a risk premium of 3% and a ‘C’ rated bond has a 200 basis points risk premium above ‘Aaa’. As an investment consultant your are asked to value the two bonds assuming the 3-month US Treasury bond pays 3%.
