Martin Shipping Lines issued bonds ten years ago at $1,000 per bond. The bonds had a 30-year life when issued, with semiannual ayments at the then annual rate of 10 percent. This return was in line with required returns by bondholders at that point, as described below:
Real rate of return .... . ....... . .. .. .. . . . ..... .2%
Inflation premium.........................................4
Risk premium .......... . .................................4
Total return.................................................10%
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.