VanessaASmith
Mar 21, 2009, 11:25 AM
The question:
Issued Bonds five years agao at 1,000 Dollars oer bond. These bonds had a 25 year life when issued and the annual interest payment was then 12%. The return was in line with the required returns by bondhoders at that point as Described:
Real Rate of return... 3%
Inflation Premium... 5
Risk Premium... 4
Total return... 12%
Assume that five years later the iflation premium is only 3% and is appropriatly reflected in the required return(or yield to maturity) of the bonds. The bonds have 20years remianing until maturity. Compute the new orice of the bond.
Issued Bonds five years agao at 1,000 Dollars oer bond. These bonds had a 25 year life when issued and the annual interest payment was then 12%. The return was in line with the required returns by bondhoders at that point as Described:
Real Rate of return... 3%
Inflation Premium... 5
Risk Premium... 4
Total return... 12%
Assume that five years later the iflation premium is only 3% and is appropriatly reflected in the required return(or yield to maturity) of the bonds. The bonds have 20years remianing until maturity. Compute the new orice of the bond.