RJR Nabisco recently experienced a market reevaluation due to a number of tobacco lawsuits.The firm has a bond outstanding with 15 years to maturity, and a coupon rate of 8%, with interest being paid semiannually.The required yield to maturity has risen to 16%.What is the price of the RJR Nabisco bond?

Question

Quizplus · Accepted Answer

The bond price can be calculated using the present value of future cash flows, which include semiannual coupon payments and the face value at maturity. With a required yield of 16% (or 8% semiannually), the bond's price is lower than its face value due to the increased yield, making option D ($550) the correct choice.

RJR Nabisco Recently Experienced a Market Reevaluation Due to a Number