Martin Shipping Lines issued bonds 10 years ago at $1,000 per bond. The bonds had a 30-year life when issued, with semiannualpayments at the then annual rate of 9 percent. This return was in line with required returns by bondholders at that point, as describedbelow:Real rate of returnInflation premiumRisk premiumTotal return6%4212%Assume that today the inflation premium is only 2 percent and is appropriately reflected in the required return (or yield to maturity) ofthe bonds.Compute the new price of the bond. Use Appendix B and Appendix D. (Round "PV Factor" to 3 decimal places. Do not roundintermediate calculations. Round the final answer to 2 decimal places.)New price of the bond

Real rate of return = 6%Inflation premium = 4%Risk premium = 2Total return = 12%

Martin Shipping Lines issued bonds 10 years ago at $1,000 per bond. The bonds had a 30-year life when issued, with semiannual payments at the then annual rate of 9 percent. This return was in line with required returns by bondholders at that point, as described below. Real rate of return Inflation premium Risk premium Total return 6% 542 12% Assume that today the inflation premium is only 2 percent and is appropriately reflected in the required return (or yield to maturity) of the bonds Compute the new price of the bond Use Appendix B and Appendix D (Round "PV Factor" to 3 decimal places. Do not round intermediate calculations. Round the final answer to 2 decimal places.) New price of the bond

Martin Shipping Lines issued bonds 10 years ago at $1,000 per bond. The bonds had a 30-year life when issued, with semiannual payments at the then annual rate of 9 percent. This return was in line with required returns by bondholders at that point, as described below. Real rate of return Inflation premium Risk premium Total return 6% 542 12% Assume that today the inflation premium is only 2 percent and is appropriately reflected in the required return (or yield to maturity) of the bonds Compute the new price of the bond Use Appendix B and Appendix D (Round "PV Factor" to 3 decimal places. Do not round intermediate calculations. Round the final answer to 2 decimal places.) New price of the bond

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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