13. 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 15 percent. This return was in line with...

13. 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 15 percent. This return was in line with the required returns by bondholders at that point as described next:



Real rate of return 4%

Inflation premium 6

Risk premium 5

Total return 15%



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. Compute the new price of the bond.

14.

A) Find thr present value of 2 percent x 1000 (or $20) for 20 years at 10 percent. The $20 is assumed to be an annual payment.

B) Add this value to $1000

C) explain why the answers to problem 14b and problem 13 are basically the same.

* Just need help with #14 not #13 thank you