Media Bias Inc. issued bonds 10 years ago at $1,000 per bond. These bonds had a 30-year life when issued and the annual interest payment was then 14 percent. This return was the required returns by bondholders at that point in time as described below: line with
Real rate return 4%
Inflation premium 5%
Risk premium 5%
Total return 14%
Assume that 10 years later, due good publicity, the risk premium is now 3 percent and is appropriately reflected the required return (or yield to maturity) of the bonds. The bonds have 20 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 answer to payments are your New price of the bond. Get Finance homework help today
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