Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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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%
4
2
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
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Transcribed Image Text: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% 4 2 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
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