Determine the bond price trade at today

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Reference no: EM132189964

Question - Today is Oct 4, 2018. ForeverLife, a biotech company, issued bonds on 4 Oct 2014 to finance the development of a new health care product. The Bonds were issued at par for 30 years (mature on 4 Oct 2044), with a face value of $1,000 and semi-annual coupons (payable in Apr and Oct every year). The coupon rate on these bonds is 8%. With the health product market becoming more and more competitive, ForeverLife's financial condition has been deteriorating consistently over the last few years.

Required -

a) As the risk associated with ForeverLife bonds is increasing dramatically, investors now require a 15% return to invest in the bonds. Determine the bond price trade at today right after the latest coupon payment.

b) Suppose ForeverLife has just admitted fraud today in its revenue reporting over the last 3 years. As a result, the bond price of the ForeverLife tumbled to $500. Estimate the new yield-to-maturity on the ForeverLife's bonds.

Reference no: EM132189964

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