Compute the new price of the bond

Assignment Help Financial Management
Reference no: EM132008748

Wilson Oil Company issued bonds five years ago at $1,000 per bond. These bonds had a 25-year life when issued and the annual interest payment was then 14 percent. This return was in line with the required returns by bondholders at that point in time as described below: Real rate of return 7 % Inflation premium 3 Risk premium 4 Total return 14 % Assume that 10 years later, due to bad publicity, the risk premium is now 6 percent and is appropriately reflected in the required return (or yield to maturity) of the bonds. The bonds have 15 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: EM132008748

Questions Cloud

Firm free cash flow-what is the value of the stock price : The firm's free cash flow is expected to grow at a constant rate of 5.5% annually. What is the value of the stock price today (Year 0)?
Bisection algorithm to approximate the yield : If the price is 102.20 $, use 10 steps of the bisection algorithm to approximate the yield.
Working on retirement savings plan : You are working on a retirement savings plan. You will deposit money every month for the next 40 years (480 months total) in your account.
What is degree of spreading leverages : HAW Inc, may produce either $100,000 of net income or $130,000 of net income, depending on the economic, What is the degree of spreading Leverages?
Compute the new price of the bond : The bonds have 15 years remaining until maturity. Compute the new price of the bond.
What is the price of the firm perpetual preferred stock : If investors require an 6% return on the preferred stock, what is the price of the firm's perpetual preferred stock?
Face value bonds outstanding : Best Lodging has $1,000 face value bonds outstanding. The current price is quoted at 101. What is the yield to maturity?
Calculate the payback period of a project with cash flows : Calculate the payback period of a project with these cash flows:
The easiest way to make dcf model look good is to : Which statement is most accurate? The easiest way to make a DCF model look good is to

Reviews

Write a Review

Financial Management Questions & Answers

  Taxable income for the earlier years of corporate existence

For the year ended December 31, Year 6, Taylor Corp. had a net operating loss of $200,000. Taxable income for the earlier years of corporate existence, computed without reference to the net operating loss, was as follows

  What will be the amount of capital tax on each investment

Samuel Jenkins made two investments, the first was 13 months ago and the second was two months ago. He just sold both investments and has a capital gain of $7,000 on each. If Samuel is in the 28 percent tax bracket, what will be the amount of capital..

  What will be its dividend payout ratio-unlevered beta

Global Inc. has a target capital structure that consists of 30% debt and 70% equity. The firm anticipates that its capital budget for the next year will be $1 million. If it reports net income of $900,000 and it follows a residual dividend policy, wh..

  What is the present value of the deal

A basketball player is offered the following contract today, Jan. 1, 2012: $2 million immediately, $2.40 million in 2012, $2.90 million in 2013, $3.60 million in 2014, and $3.80 million in 2015. If the appropriate discount rate is 10 percent per year..

  Why is it important to estimate cost of capital

What is cost of capital? What does it represent? Why is it important to estimate cost of capital? Is cost of capital set by investors or managers?

  Stocks of similar risk have effective annual rate of return

Davy Jones is considering the purchase of stock in Giant Squid Inc. knowing that stocks of similar risk have an effective annual rate of return of 14%. Giant Squid Inc. intends to pay quarterly dividends, with the first dividend of $1 occurring in tw..

  Annual savings needed to meet his retirement goal

Calculate Mr. Jones capital needs at retirement. Calculate the annual savings needed to meet his retirement goal.

  Annual motor-vehicle insurance premium

Find the annual motor-vehicle insurance premium for the following.

  About the random number generation tool

Which of the following is true about the Random Number Generation tool?

  What is the probability index of the cash flow

What is the probability index of the cash flow in 6.15?

  Expected return and total holding period return

What is the difference between an expected return and a total holding period return?

  Market efficiency implies that there is no best time

Market efficiency implies that there is no "best time" to purchase an asset. Explain why this is the case.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd