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 11 percent. This return was in line with the required returns by bondholders at that point in time as described below 3% Real rate of return Inflation premium Risk premium 4 4 Total return 11% 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 30 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. (Do not round intermediate calculations. Round your final answer to 2 decimal places. Assume interest payments are annual.); New price of the bond Appendix B Present value of $1. PV Period 1% 2% 1 0.990 0.980 2 0.980 0.961 0.971 0.942 0.961 0.924 0.951 0.906 0.942 0.888 0.933 0.871 0.923 0.853 0.914 0.837 0.905 0.820 0.896 0.804 0.887 0.788 0.879 0.773 0.870 0.758 0.861 0.743 0.853 0.728 0.844 0.714 0.836 0.700 0.828 0.686 0.820 0.673 0.780 0.610 0.742 0.552 0.672 0.453 0.608 0.372 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 888585 20 25 30 40 50 PV=FV [0+0 3% 0.971 0.943 0.915 0.888 0.863 0.837 0.813 0.789 0.766 0.744 0.722 0.701 0.681 0.661 0.642 0.623 0.605 0.587 0.570 0.554 0.478 0.412 0.307 0.228 4% 0.962 0.925 0.889 0.855 0.822 0.790 0.760 0.731 0.703 0.676 0.650 0625 0.601 0.577 0.555 0.534 0513 0.494 0475 0.456 0.375 0.308 0208 0.141 5% 0.952 0.907 0.864 0.823 0.784 0.746 0.711 0.677 0.645 0.614 0.585 0.557 0.530 0.505 0.481 0.458 0.436 0.416 0.396 0.377 0.295 0.231 0.142 0.087 Percent 6% 0.943 0.890 0.840 0.792 0.747 0.705 0.665 0.627 0,592 0.558 0.527 0.497 0.469 0.442 0.417 0.394 0.371 0.350 0.331 0.312 0.233 0,174 0.097 0.054 7% 0.935 0.873 0.816 0.763 0.713 0.666 0.623 0.582 0.544 0.508 0.475 0.444 0415 0.388 0.362 0.339 0.317 0.296 0.277 0.258 0.184 0.131 0.067 0.034 B% 0.926 0.857 0.794 0.735 0,681 0.630 0.583 0.540 0.500 0.463 0.429 0.397 0.368 0.340 0.315 0.292 0.270 0.250 0.232 0.215 0.146 0.099 0,046 0,021 9% 10% 0.917 0.909 0.842 0826 0.772 0.751 0.708 0.683 0.650 0621 0.596 0.564 0.547 0.513 0.502 0.467 0.460 0.424 0.422 0.386 0.388 0,350 0.356 0.319 0.326 0.290 0.299 0.263 0.275 0.239 0.252 0218 0.231 0.198 0.212 0.180 0.194 0.164 0.178 0.149 0.116 0.092 0.075 0.057 0.032 0,022 0.013 0.009 11% 0.901 0812 0.731 0.659 0,593 0.535 0.482 0,434 0.391 0.352 0.317 0.286 0.258 0.232 0.209 0.188 0.170 0.153 0.138 0.124 0.074 0.044 0.015 0.005 12% 0.893 0.797 0712 0.636 0.567 0.507 0452 0.404 0.361 0.322 0.287 0.257 0.229 0.205 0.183 0.163 0.146 0.130 0.116 0.104 0.059 0033 0011 0.003 Appendix 8 (concluded) Present value of $1 Percent Period 13% 15% 20% 30% 35% 1 0885 40% 50% 0.877 0.870 2 0.667 0.783 0.769 0.756 0.743 0.731 0641 0.624 3 0.693 10% 0862 0.855 0.847 0.718 0.609 0.552 0.534 0.515 0.437 0.370 0.675 0.658 0.592 0.572 0.769 0.741 0.592 0.549 0.455 0.350 0.269 0223 0.186 0.714 0,510 0444 0.296 0.198 0.406 0.364 0.613 0.301 0.260 0.543 0.519 0.497 0.476 0.456 0.132 0.480 0.456 0.432 0.390 0.165 0.133 0.088 0.425 0.400 0.376 0.410 0.354 0314 0.327 0.305 0.285 0.266 0.333 0.122 0.207 0.159 0.168 0.123 0.091 0.095 0.059 tax 25% 0.840 0.833 0.800 0.706 0.694 0.640 0.593 0.579 0.512 0.499 0.482 0.410 0.419 0.402 0.328 0.352 0.335 0.262 0.279 0.210 0.233 0.194 0.162 0.107 0.073 0.050 0.135 0.086 0.056 0.037 0.025 0.112 0.069 0.043 0.027 0.018 0.093 0.055 0.033 0.020 0.013 0.078 0.015 0.009 0.074 0,065 0.006 0.062 0.296 0.249 0.376 0.351 0.068 0.039 0.333 0.308 0.284 0.134 0.094 0.067 0.048 0.026 0.295 0.270 0.247 0.227 0.035 0.017 0.261 0.237 0.215 0.208 0.178 0.168 0.152 0.137 0.195 0.263 0.243 0.225 0.209 0.191 0.176 0.162 0.148 0.124 0,104 0.012 0.231 0 208 0.187 0.005 0.204 0.182 0.163 0.145 0.130 0.116 0.005 0.181 0.160 0.141 0.111 0.099 0.088 0.003 0.160 0.002 0.044 0.025 0.035 0.028 0.045 0.023 0.054 0.071 0.005 0.125 0.140 0.123 0.108 0.095 0.084 0.123 0.107 0.093 0.081 0.093 0.080 0.069 0.081 0.069 0.059 0.141 0.002 0.020 0011 0.015 0.008 0.012 0.006 0.005 0.125 0.108 0.060 0.052 0.003 0.001 0044 0.051 0.038 0.009 0.018 0.002 0.095 0.001 0.111 0.043 0.060 0.037 0.051 0.031 0.014 0.003 0.007 0.098 0.002 0.083 0.070 0.037 0.043 0.031 0,026 0012 0.005 0.002 0.051 0.001 0.087 0.061 0.073 0.024 0.016 0.020 0.013 0.010 0.004 0.001 0.001 0.038 0.030 0.047 0.007 0.004 0.001 0.005 0.026 0.012 0.009 0.020 0.015 0.001 0.002 0.001 0.001 0.008 0.003 0.005 0.004 0 0.001 0 0 0.001 0.002 0.001 4 5 6 7 8. 9 10 11 12 13 14 15 16 17 18 19 20 25 30 40 50 8 00 000 0 0 0 0 0 0 0 0 6 0 000 000 Appendix D Present value of an annuity of $1, PV (1+0 Period 2% 3% 5% 6% 7% 9% 10% 11% 12% 1 0.990 0.980 0.971 0.952 0.943 0.935 0.926 0.917 0.909 0.901 0.893 2 1.970 1.942 1.913 1.859 1.833 1.808 1.783 1.759 1.736 1.713 1.690 2.941 2.884 2.829 2.723 2.673 2.624 2.577 2.531 2.487 2444 2.402 3.902 3.808 3.717 3.546 3.465 3.387 3.312 3,240 3.170 3.102 3.037 4.853 4.713 4.580 4.329 4.212 4,100 3.993 3.890 3.791 3.696 3.605 5.795 5.601 5.417 5.076 4.917 4.767 4.623 4.486 4.355 4.231 4.111 6.728 6.472 6.230 5.786 5.582 5.389 5.206 5.033 4.868 4.712 4.564 7.652 7.325 7.020 6.463 6.210 5.971 5.747 5.535 5.335 5.146 4.968 8,566 8.162 7.786 7.108 6.802 6.515 6.247 5.995 5.759 5.537 5.328 9.471 8.983 8.530 7.722 7.360 7,024 6.710 6,418 6.145 5.889 5.650 10.368 9.787 9.253 8.306 7.887 7,499 7.139 6.805 6.207 5.938 6.495 7.161 6.814 6.492 11.255 10.575 9.954 8.863 8.384 7.943 7.536 6.194 12.134 11.348 10.635 9.986 9.394 8.853 8.358 7.904 7.487 7.103 6.750 6.424 13.004 12.106 11.296 10.563 9.899 9.295 8.745 8.244 7.367 6.982 6628 13.865 11.938 11.118 10.380 9.712 9.108 8.559 6811 14.718 9,447 6.974 7.786 8.061 7.606 7.191 8.313 7.824 7.379 8.544 8.022 7,549 8.756 8.201 7.702 8.950 8.365 7.839 7.120 12.849 13.578 12.561 11.652 10.838 10.106 15.562 14.292 13.166 12.166 11.274 10.477 9.763 16.398 14.992 13.754 12.659 11.690 10.828 10.059 14.324 13.134 12.085 11.158 10.336 14.877 13.590 12.462 11.470 10.594 14.094 12.783 11.654 12.409 7.250 7.366 15.678 17,226 18.046 16.351 8.851 9.122 9.372 9.604 9.818 9.129 8.514 7.963 10.675 9.823 9.077 8.422 11.258 10.274 9.427 8.694 11.925 10.757 9.779 12.233 13.801 9.915 10.962 7.469 7,843 22.023 19.523 17.413 15.622 8.055 25.808 22.396 19.600 13.765 17.292 15.372 8.951 32.835 13.332 8.244 15.046 27.355 23.115 19.793 17.159 9.042 8.304 39.196 25.730 21.482 31.424 15.762 18.256 3 4 5 6 7 8 9 10 11. 12 13 14 15 16 7 18 19 20 5 30 40 50 17 25 PV-A 1-1 0.962 1.886 2.775 3.630 4.452 5.242 6.002 6.733 7.435 8.111 8.760 9.385 Percent Appendix D (concluded) Present value of an annuity of $1 Period 13% 16% 1 0.885 0.877 0.870 0.862 2 1.668 1.647 1.626 1.605 3 2.361 2.322 2.283 2.246 4 2.974 2.914 2.855 2.798 3.517 3.433 3.352 3.274 3.998 3.889 3.784 3.685 4.288 4.160 4.039 4.423 4.799 4.639 4.487 4.344 9 5.132 4.946 4.772 4.607 10 5.426 5.216 5.019 4.833 11 5.687 5.453 5.234 5.029 12 5.918 5.660 5.421 5.197 13. 6.122 5.842 5.583 5.342 14 6.302 6.002 5.724 5.468 15 6.462 6.142 5.847 5.575 16 6.604 6.265 5.954 5.668 17 6.729 6.373 6.047 5.749 18 6.840 6.467 6.128 5.818 6.938 6.198 6.550 5.877 7.025 6623 6.259 5.929 7.330 6.873 6.464 6.097 7.496 7.003 6.566 6.177 7.634 7.105 6.642 6.233 7.675 7.133 6.661 6.246 19 888585 20 25 30 40 50 H Percent 17% 18% 19% 20% 25% 30% 35% 40% 0.855 0.847 0.840 0.800 0.769 0.741 0.714 1,585 1.566 1.547 0.833 1.528 2.106 1.440 1.361 1.289 1.224 2.210 2.174 2.140 1.952 1.816 1.696 1.589 2.743 2.690 2.639 2.589 2.362 2.166 1.997 1.849 3.199 3.127 3.058 2.991 2.689 2.436 2.220 2.035 3.589 3.498 3.410 2.643 2.385 2.168 3.812 3.706 3.922 4.207 4.078 3.954 3.326 2.951 3.605 3.161 2.802 2.508 2.263 3.837 3.329 2.925 2.598 2.331 4.451 4.303 4.163 2.379 4.031 4.192 4.659 4.494 4.339 2.414 3.463 3.019 2.665 3.571 3.092 2.715 3.656 3.147 2.752 3,725 2.779 2.456 4.486 4.327 2.438 4.836 4.656 4.988 4.793 4.611 4,439 3.190 5.118 4.910 4.715 4,533 3,780 3.223 2.799 2.469 5.229 5.008 4.802 4.611 3.824 3.249 2814 2.478 5.324 5.092 4.876 4.675 3.859 3.268 2.825 2.484 5.405 5.162 4.938 4.730 3.887 3.283 2.834 2.489 5.475 5.222 4.988 4.775 3.910 3.295 2.840 2.492 5.534 5.273 5.033 4.812 3.928 3.304 2.844 2.494 5.584 5.316 5.070 4.843 3.942 3.311 2.848 2.496 5.628 5.353 5.101 4.870 3.954 3.316 2.850 2.497 5.766 5.467 5.195 4.948 3.985 3.329 2.856 2,499 5.829 5.517 5,235 4.979 3.995 3.332 2.857 2.500 5.871 5,548 5.258 4.997 3.999 3.333 2.857 2.500 5.880 5.262 4.000 4.999 3.333 2.857 2,500 5.554 50% 0.667 1.111 1.407 1.605 1.737 1.824 1,883 1.922 1.948 1,965 1.977 1.985 1.990 1.993 1.995 1.997 1.998 1.999 1.999 1.999 2.000 2.000 2.000 2.000