Compute the new price of the Bond. Assume M.K. Electronics issued bonds 12 years ago at $1,000 per bond. These bonds had a 30-year life when issued and the annual interest payment was then 17 percent. This return was in line with the required returns by bondholders at that point in time as described in the following image/table. * Assume that 12 years later, the risk premium is now 2 percent and inflation has decreased to 5 percent appropriately reflected in the required return of the bonds.

Inflation premium 7% Risk premium 5% Real rate of return 5% Total return 17