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Tom Cruise Lines issue bonds five years ago at $1000 per bond These bonds had a 25year life when issued and the annual interest payment was 12 This return was in line with the required returns by

Tom Cruise Lines issue bonds five years ago at $1,000 per bond. These bonds had a 25-year life when issued and the annual interest payment was 12%. This return was in line with the required returns by bondholders at the point as described below

real rate of return 3%
inflation premium 4%
risk premium 5%

total return 12%

Assume that five years later the inflation premium is only 3% and is appropriately reflected in the require return or yield to maturity of the bonds. The bonds have 20 years remaining until maturity.

New price of the bond?

 

Aug 11 2020 View more View Less

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