Media Bias Inc. issued bonds 10 years ago at $1,000 per bond. These bonds had a 40-year life when issued and the annual interest payment was then 11 percent. This return was in line with the required returns by bondholders at that point in time as described below: Real rate of return 3 % Inflation premium 4 Risk premium 4 Total return 11 % Assume that 10 years later, due to good publicity, the risk premium is now 3 percent and is appropriately reflected in the required return (or yield to maturity) of the bonds. The bonds have 30 years remaining until maturity.

The question is calculate the current price of the bond?

The answer is: Current price of the bond is $1,094.27.

Explanation:

We have:

* The current required rate of return = Real rate of return + Inflation premium + Risk premium = 3% + 4% + 3% = 10%

* Bond's coupon = Face value x interest rate = 1,000 x 11% = $110

=> Current price of the bond is the present value of its future cash flows including 30 coupon payment annually and one principal repayment at the end of 30-year time, discounted at 10%; which is calculated as:

(110/10%) x [ 1 - 1.1^(-30) ] + [1,000/1.1^(30)] = $1,094.27.

So, the answer is $1,094.27.

1   all nations face the problem of scarcity because there are limited resources and unlimited wants. nations do not have enough factors of production to produce everything that their population wants. entrepreneurial resources initiate businesses to make new goods and services; labor resources produce goods and services.

2 there are four factors of production: natural resources, labor resources, capital resources, and entrepreneurial resources. natural resources are raw materials from nature that are used to produce goods. trees, water, and grains are natural resources. some natural resources, such as wheat and cattle, are renewable

3 wants

things that you do not need to have in order to survive, but would like to have

needs

things that you must have in order to survive

goods

physical products

services

tasks that a business perform for customers

resources

items that people can use to make or obtain what they need or want

determine

to settle or decide by choice of alternatives or possiblities

4 i really dont know

answer; institution based;