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What is the current price of the bond

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Question - A $1,000 par value bond was issued 30 years ago at a 12 percent coupon rate. It currently has 25 years remaining to maturity. Interest rates on similar obligations are now 8 percent. Assume Ms. Bright bought the bond three years ago when it had a price of $1,030. Further assume Ms. Bright paid 20 percent of the purchase price in cash and borrowed the rest (known as buying on margin). She used the interest payments from the bond to cover the interest costs on the loan.

a. What is the current price of the bond?

b. What is her dollar profit based on the bond's current price?

c. How much of the purchase price of $1,030 did Ms. Bright pay in cash?

d. What is Ms. Bright's percentage return on her cash investment? Divide the answer to part b by the answer to part c.

Reference no: EM132616094

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