Compute the new price of the bond

Assignment Help Financial Management

Reference no: EM131978720

Tom Cruise Lines Inc. issued bonds five years ago at $1,000 per bond. These bonds had a 30-year life when issued and the annual interest payment was then 15 percent. This return was in line with the required returns by bondholders at that point as described below: Real rate of return 5 % Inflation premium 6 Risk premium 4 Total return 15 % Assume that five years later the inflation premium is only 2 percent and is appropriately reflected in the required return (or yield to maturity) of the bonds. The bonds have 25 years remaining until maturity. Compute the new price of the bond. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. (Do not round intermediate calculations. Round your final answer to 2 decimal places. Assume interest payments are annual.)

Reference no: EM131978720

Questions Cloud

What are your winnings worth today : You just won a contest! You will receive $50,000 a year for 30 years, starting today. what are your winnings worth today?

What is the estimated real rate of interest : What is the estimated real rate of interest if the CPI is currently 2 percent?

Difference between book value and market capitalization : What is the difference between the book value and market capitalization of a company? What is the relationship of each of these financial measures to a company’

Compute the price of the stock at the end of the fourth year : Beasley Ball Bearings paid a $4 dividend last year. Compute the price of the stock at the end of the fourth year (P4). Compute the current value of the stock.

Compute the new price of the bond : Tom Cruise Lines Inc. issued bonds five years ago at $1,000 per bond. Compute the new price of the bond.

Write an academic report about 3d printing technology : COIT20249 - Professional Skills in Information Communication Technology - Your report should not just focus on generic use of 3D Printing Technology

Contrast the payback method-internal rate of return method : Compare and contrast the payback method, the internal rate of return method, and the net present value method. Which is more “accurate”? Why?

How much will you pay in interest and pay in principal : How much will you pay in interest and how much will you pay in principal, during the first month, second month, and first year?

Define absolute and relative purchasing power parity : Please define absolute and relative purchasing power parity, interest rate parity, and unbiased forward rates.

User Account

All Pages