Reflected in the required return of the bonds

Assignment Help Financial Management

Reference no: EM131893177

The Griggs Company issued bonds five years ago at $1,500 per bond. These bonds had a 25-year life when issued and the annual interest payment was then 15%. This return was in line with the required returns by bondholders at that point in time as described next:

Real rate of return................ 10%

Inflation premium 4

Risk premium 5

Total return 19%

Assume that 10 years later, due to bad publicity, the risk premium is now 8 percent and is appropriately reflected in the required return (or yield to maturity) of the bonds. The bonds have 15 years remaining until maturity. Compute the new price of the bond.

Reference no: EM131893177

Questions Cloud

Company wacc if all the equity used is retained earnings : The target capital structure cosists of 23% debt and 77% common equity. What is the company WACC if all the equity used is retained earnings?

Specializes in buying deep discount bonds : Lance Whittingham IV specializes in buying deep discount bonds. These represent bonds that are trading at well below par value.

Calculate the two projects NPVs-IRRs-MIRRs and PIs : Calculate the 2 projects’ NPVs, IRRs, MIRRs, and PIs, assuming a cost of capital of 11%. Which project should be selected?

What is required return on the terrapins fund : What is the fund’s overall, or weighted average, beta? what is the required return on the Terrapins Fund?

Reflected in the required return of the bonds : The risk premium is now 8 percent and is appropriately reflected in the required return (or yield to maturity) of the bonds.

Retiring early : Retiring early. Over your future investing & retired life, assume you earn 8% [after expenses this time].

What yearly cash flow must project generate to break-even : The bookstore wants a 10.00% return on their investment. What yearly cash flow must this project generate to “break-even”?

Estimate the volatility for each stock : estimate the volatility for each stock

Compute the current price of stock : Compute the current price of the stock (P0).

User Account

All Pages