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Business, 10.08.2021 01:00 Aidanme25

Tom Cruise Lines Inc. 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 12 percent. This return was in line with the required returns by bondholders at that point as described below: Real rate of return 5%
Inflation premium 6
Risk premium 4
Total return 15%

Assume that five years later the inflation premium is only 2 percent and is appropriately reflected in the required return (or yield to maturity) of the bonds. The bonds have 25 years remaining until maturity.
Required:
Compute the new price of the bond.

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