Loose Leaf for Foundations of Financial Management Format: Loose-leaf
Loose Leaf for Foundations of Financial Management Format: Loose-leaf
17th Edition
ISBN: 9781260464924
Author: BLOCK
Publisher: Mcgraw Hill Publishers
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Chapter 10, Problem 13P
Summary Introduction

To calculate: The new price of the bond of Tom Cruise Lines Inc.

Introduction:

Bond Valuation:

It refers to a method of determining the value of a bond based on certain inputs, such as coupon rate, time to maturity, and yield to maturity. This technique calculates the present value of the future cash flows of the bond, which also includes its face value that is expected to be received at maturity.

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Tom Cruise Lines Incorporated issued bonds five years ago at $1,000 per bond. These bonds had a 30-year life when issued and the annual interest payment was then 15 percent. This return was in line with the required returns by bondholders at that point as described below: Real rate of return Inflation premium Risk premium Total return 58 6 4 158 Assume that five years later the inflation premium is only 2 percent and is appropriately reflected in the required return (or yield to maturity) of the bonds. The bonds have 25 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. Note: Do not round intermediate calculations. Round your final answer to 2 decimal places. Assume interest payments are annual. New price of the bond t
Tom Cruise Lines Incorporated issued bonds five years ago at $1,000 per bond. These bonds had a 25-year life when issued and the annual interest payment was then 14 percent. This return was in line with the required returns by bondholders at that point as described below: Real rate of return Inflation premium Risk premium Total return 5% 14% Assume that five years later the inflation premium is only 3 percent and is appropriately reflected in the required return (or yield to maturity) of the bonds. The bonds have 20 years remaining until maturity. New price of the bond 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. Note: Do not round intermediate calculations. Round your final answer to 2 decimal places. Assume interest payments are annual. Check my
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 13 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 3% 4 2 9% Assume that today the inflation premium is only 1 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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Loose Leaf for Foundations of Financial Management Format: Loose-leaf

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