Foundations of Financial Management
16th Edition
ISBN: 9781259277160
Author: Stanley B. Block, Geoffrey A. Hirt, Bartley Danielsen
Publisher: McGraw-Hill Education
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Chapter 10, Problem 13P
Summary Introduction
To calculate: The new price of the bond of Tom Cruise Lines Inc.
Introduction:
Bond Valuation:
It refers to a method of determining the value of a bond based on certain inputs, such as coupon rate, time to maturity, and yield to maturity. This technique calculates the
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Tom Cruise Lines Incorporated issued bonds five years ago at $1,000 per bond. These bonds had a 30-year life when issued and the
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58
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Assume that five years later the inflation premium is only 2 percent and is appropriately reflected in the required return (or yield to
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Compute the new price of the bond. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using
the formula and financial calculator methods.
Note: Do not round intermediate calculations. Round your final answer to 2 decimal places. Assume interest payments are annual.
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Tom Cruise Lines Incorporated 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 14 percent. This return was in line with the required returns by bondholders at that point as
described below:
Real rate of return
Inflation premium
Risk premium
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5%
14%
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.
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Compute the new price of the bond. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using
the formula and financial calculator methods.
Note: Do not round intermediate calculations. Round your final answer to 2 decimal places. Assume interest payments are annual.
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Martin Shipping Lines issued bonds 10 years ago at $
1,000 per bond. The bonds had a 30-year life when
issued, with semiannual payments at the then annual
rate of 12 percent. This return was in line with required
returns by bondholders at that point, as described
below: Real rate of return 2% Inflation premium 4 Risk
premium 4 Total return 10 % Assume that today the
inflation premium is only 3 percent and is appropriately
reflected in the required return (or yield to maturity) of
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to 2 decimal places.) New price of the bond $
Chapter 10 Solutions
Foundations of Financial Management
Ch. 10 - Prob. 1DQCh. 10 - Prob. 2DQCh. 10 - What are the three factors that influence the...Ch. 10 - If inflationary expectations increase, what is...Ch. 10 - Why is the remaining time to maturity an important...Ch. 10 - What are the three adjustments that have to be...Ch. 10 - Why is a change in required yield for preferred...Ch. 10 - What type of dividend pattern for common stock is...Ch. 10 - What two conditions must be met to go from Formula...Ch. 10 - What two components make up the required rate of...
Ch. 10 - Prob. 11DQCh. 10 - Prob. 12DQCh. 10 - What approaches can be taken in valuing a firm’s...Ch. 10 - Prob. 1PCh. 10 - Prob. 2PCh. 10 - For the first 20 bond problems, assume interest...Ch. 10 - Prob. 4PCh. 10 - Prob. 5PCh. 10 - Prob. 6PCh. 10 - Prob. 7PCh. 10 - Prob. 8PCh. 10 - For the first 20 bond problems, assume interest...Ch. 10 - Prob. 10PCh. 10 - Prob. 11PCh. 10 - For the first 20 bond problems, assume interest...Ch. 10 - Prob. 13PCh. 10 - Prob. 14PCh. 10 - For the first 20 bond problems, assume interest...Ch. 10 - For the first 20 bond problems, assume interest...Ch. 10 - Prob. 17PCh. 10 - Prob. 18PCh. 10 - Prob. 19PCh. 10 - Prob. 20PCh. 10 - For the next two problems, assume interest...Ch. 10 - For the next two problems, assume interest...Ch. 10 - For the next two problems, assume interest...Ch. 10 - For the next two problems, assume interest...Ch. 10 - For the next two problems, assume interest...Ch. 10 - Prob. 26PCh. 10 - All of the following problems pertain to the...Ch. 10 - All of the following problems pertain to the...Ch. 10 - Ecology Labs Inc. will pay a dividend of $6.40 per...Ch. 10 - Maxwell Communications paid a dividend of $3 last...Ch. 10 - Justin Cement Company has had the following...Ch. 10 - A firm pays a dividend at the end of year one ...Ch. 10 - A firm pays a dividend at the end of year one ...Ch. 10 - Trump Office Supplies paid a dividend last year....Ch. 10 - Beasley Ball Bearings paid a dividend last year....Ch. 10 - Prob. 2WECh. 10 - Prob. 3WECh. 10 - Prob. 4WE
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