Tom Cruise Lines Inc. issued bonds five years ago at $1,000 per bond. These bonds had...

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Tom Cruise Lines Inc. issued bonds five years ago at $1,000 perbond. These bonds had a 30-year life when issued and the annualinterest payment was then 15 percent. This return was in line withthe required returns by bondholders at that point as describedbelow:

Real rate of return 5 %
Inflation premium 5
Risk premium 5
Total return 15 %

Assume that five years later the inflation premium is only 3percent and is appropriately reflected in the required return (oryield to maturity) of the bonds. The bonds have 25 years remaininguntil maturity.

Compute the new price of the bond. Use Appendix B and Appendix Dfor an approximate answer but calculate your final answer using theformula and financial calculator methods. (Do not roundintermediate calculations. Round your final answer to 2 decimalplaces. Assume interest payments are annual.)

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The Revised Yield to Maturity of the Bond The Revised Yield to Maturity of the Bond Real rate of return Revised Inflation premium Risk premium 500 300 500 1300 New Price of the Bond The See Answer

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Tom Cruise Lines Inc. issued bonds five years ago at $1,000 perbond. These bonds had a 30-year life when issued and the annualinterest payment was then 15 percent. This return was in line withthe required returns by bondholders at that point as describedbelow: Real rate of return5%Inflation premium5Risk premium5Total return15%Assume that five years later the inflation premium is only 3percent and is appropriately reflected in the required return (oryield to maturity) of the bonds. The bonds have 25 years remaininguntil maturity. Compute the new price of the bond. Use Appendix B and Appendix Dfor an approximate answer but calculate your final answer using theformula and financial calculator methods. (Do not roundintermediate calculations. Round your final answer to 2 decimalplaces. Assume interest payments are annual.)


Real rate of return	5	%
Inflation premium	5
Risk premium	5
Total return	15	%