Determination of the required rate of return

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Reference no: EM133377710

On February 1, 2013, Forsling Corp. sold a $900 million bond issue to finance the purchase of a new distribution facility. These bonds were issued in $1,000 denominations with a maturity date of February 1, 2043. The bonds have a coupon rate of 12.00% with interest paid semiannually.

a. Determine the value today, February 1, 2023 of one of these bonds to an investor who requires an 8 percent return on these bonds. Why is the value today different from the par value?

b. Assume that the bonds are selling for $1,095.00. Determine the current yield and the yield-to-maturity. Explain what these terms mean.

c. Explain what layers or textures of risk play a role in the determination of the required rate of return on Forsling's bonds.

Reference no: EM133377710

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