Question

Media Bias Inc. issued bonds 10 years ago at $1,000 per bond. These bonds had a...

Media Bias Inc. issued bonds 10 years ago at $1,000 per bond. These bonds had a 30-year life when issued and the annual interest payment was then 11 percent. This return was in line with the required returns by bondholders at that point in time as described below: Assume that 10 years later, due to good publicity, the risk premium is now 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.

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Value of Bond = PV of future cash flows from that bond

Due to positive publicity, people feel that the security is less risky and expect less return. Thus expected return will be reduced by Risk Premium

Req Rate = Int Rate - risk Premium

= 11% - 3%

= 8%

Value of Bond today:

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Media Bias Inc. issued bonds 10 years ago at $1,000 per bond. These bonds had a...
Media Bias Inc. issued bonds 10 years ago at $1,000 per bond. These bonds had a 40-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 in time as described below: Real rate of return 5 % Inflation premium 4 Risk premium 5 Total return 14 % Assume that 10 years later, due to good publicity, the risk premium is now 2 percent...
Wilson Oil Company issued bonds five years ago at $1,000 per bond. These bonds had a...
Wilson Oil Company 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 13 percent. This return was in line with the required returns by bondholders at that point in time as described below: Real rate of return 5 % Inflation premium 4 Risk premium 4 Total return 13 % Assume that 10 years later, due to bad publicity, the risk premium is now 7 percent...
Wilson Oil Company issued bonds five years ago at $1,000 per bond. These bonds had a...
Wilson Oil Company 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 in time as described below: Real rate of return 7 % Inflation premium 3 Risk premium 4 Total return 14 % Assume that 10 years later, due to bad publicity, the risk premium is now 6 percent...
Wilson Oil Company issued bonds five years ago at $1,000 per bond. These bonds had a...
Wilson Oil Company 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 14 percent. This return was in line with the required returns by bondholders at that point in time as described below:    Real rate of return 7 % Inflation premium 4 Risk premium 3 Total return 14 % Assume that 10 years later, due to bad publicity, the risk premium is now 7...
Wilson Oil Company issued bonds five years ago at $1,000 per bond. These bonds had a...
Wilson Oil Company 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 16 percent. This return was in line with the required returns by bondholders at that point in time as described below:    Real rate of return 8 % Inflation premium 4 Risk premium 4 Total return 16 % Assume that 10 years later, due to bad publicity, the risk premium is now 8...
Tom Cruise Lines Inc. issued bonds five years ago at $1,000 per bond. These bonds had...
Tom Cruise Lines Inc. 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 12 percent. This return was in line with the required returns by bondholders at that 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 percent and is appropriately reflected in...
Tom Cruise Lines Inc. issued bonds five years ago at $1,000 per bond. These bonds had...
Tom Cruise Lines Inc. 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 3 % Inflation premium 6 Risk premium 5 Total return 14 % Assume that five years later the inflation premium is only 3 percent and is appropriately reflected in...
Tom Cruise Lines Inc. issued bonds five years ago at $1,000 per bond. These bonds had...
Tom Cruise Lines Inc. 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 12 percent. This return was in line with the required returns by bondholders at that 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 percent and is appropriately reflected in...
Tom Cruise Lines Inc. issued bonds five years ago at $1,000 per bond. These bonds had...
Tom Cruise Lines Inc. 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 14 percent. This return was in line with the required returns by bondholders at that point as described below:    Real rate of return 3 % Inflation premium 6 Risk premium 5 Total return 14 % Assume that five years later the inflation premium is only 3 percent and is appropriately reflected...
3) Microform, Inc. issued bonds 10 years ago at $1,000 per bond. These bonds had a...
3) Microform, Inc. issued bonds 10 years ago at $1,000 per bond. These bonds had a 15 year life when issues and the annual interest rate / coupon on the bonds was then 12%. This return was in line with the required returns by bondholders at that point as described next: Real Rate of Return = 4% Inflation Premium = 4% Risk Premium = 4% Total Return = 12% Assume that 10 years later the inflation premium is only 2%...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT