Answer:
Price of the bond = $1,252.65 (Approx)
Explanation:
Required Return = Real rate of return + Risk premium + Inflation premium
Required Return [After 5 yr] = 5% + 4% + 2%
Required Return [After 5 yr] = 11%
Number of year left [for maturity] = 30 -5 = 25 year
Interest payment = $1,000 x 14%
Interest payment = $140
Using Formula in excel;
Price of the bond = pv(rate,nper,pmt,fv)
Price of the bond = pv(11%,25,140,1000)
Price of the bond = $1,252.65 (Approx)