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:<\/p>
<\/p>
Real rate of return3%Inflation premium4Risk premium5Total return12%<\/p>
<\/p>
Assume that five years later the inflation premium is only 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.<\/p>
<\/p>
What is the new price of the bond? <\/p>", "transcribed_text": "", "related_book": { "title": "Smith and Roberson Business Law", "isbn": "1285141903, 1285141903, 9781285141909, 978-0538473637", "edition": "15th Edition", "authors": "Richard A. Mann, Barry S. Roberts", "cover_image": "https:\/\/dsd5zvtm8ll6.cloudfront.net\/si.question.images\/book_images\/110.jpg", "uri": "\/textbooks\/smith-and-roberson-business-law-15th-edition-110", "see_more_uri": "" }, "free_related_book": { "isbn": "1540399605", "uri": "\/textbooks\/school-safety-agent-new-york-city-1st-edition-978-1540399601-357479", "name": "School Safety Agent New York City", "edition": "1st Edition" }, "question_posted": "2024-06-06 16:11:06", "see_more_questions_link": "\/study-help\/questions\/business-economics-2023-September-08", "step_by_step_answer": "The Answer is in the image, click to view ...", "students_also_viewed": [ { "url": "\/the-1997-annual-report-of-sunbeam-corp-reported-net-income", "description": "The 1997 Annual Report of Sunbeam Corp. reported net income of $ 109.4 million, with sales of $ 1.2 billion. According to CEO chainsaw Al Dunlap, we had an amazing year. 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