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Compute the new price of the bond

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Reference no: EM132780801

Marlin Transportation Inc. issued bonds ten years ago at $1,000 per bond. The bonds had a 20 year life when issued, with semiannual payments at the then 10 percent. The return was in line with required returns by bondholders at that point described below:

Real rate of return3%

Inflation premium3%

Risk Premium4%

Total Return10%

Assume that today the inflation rate is only 2% and is appropriately reflected in the required return of the bonds. Compute the new price of the bond.

Reference no: EM132780801

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