Find out the current price of the bond


Problem:

A $1,000 par value bond was issued 25 years ago at a 12 percent coupon rate. It currently has 15 years remaining to maturity. Interest rates on similar obligations are now 10 percent. Assume Ms. Bright bought the bond three years ago when it had a price of $1,060. Further assume Ms. Bright paid 35 percent of the purchase price in cash and borrowed the rest (known as buying on margin). She used the interest payments from the bond to cover the interest costs on the loan.

Required:

Question 1: What is the current price of the bond?

Question 2: What is her dollar profit based on the bond's current price?

Question 3: How much of the purchase price of $1,060 did Ms. Bright pay in cash?

Question 4: What is Ms. Bright's percentage return on her cash investment? Divide the answer to part b by the answer to part c

Note: Explain all steps comprehensively.

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Accounting Basics: Find out the current price of the bond
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