Wilson oil company issued bonds five years ago at 1000 per

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Wilson Oil Company issued bonds five years ago at $1000 per bond. These bonds had a 25-year life when issued and the annual interest payment was then 8 percent. This return was in line with the annual interest payment was then 8 percent. This return was in line with the required returns by bondholders at that point in time as described below:

Real rate of return: 2%
Inflation premium: 3%
Risk premium: 3%
Total Return 8%

Assume that 10 years later, due to bad publicity, the risk premium is now 6 percent and is appropriately reflected in the required return of the bonds. The bonds have 15 years remaining until maturity. Compute the new price of the bond.

Reference no: EM13572379

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