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Based on the following information concerning Daves bonds:
Par value: $1,000
Years to maturity: 15 years
Coupon rate: 8% paid semiannually
Beta: 0.1
Risk-free rate: 4%
Market risk premium: 5%
What is the expected price of the bond in 4 years? You believe that the risk free rate then will remain at 4% but the market risk premium is like to rise to 10% due to a worsening economic outlook.
a. $1,274.01
b. $1,263.87
c. $1,259.33
d. $1,251.48
e. $1,282.64
What is the NPV of the new product? what level of expected cash flows does it make sense to abandon the project?
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