Transcribed Image Text
Consider a corporation who recently filed Chapter 11 bankruptcy(reorganization). Under the reorganization, the company has beenallowed to reorganize their debt structure with a consolidated newdeferral bond issue with more favorable terms. The new issue willbe a 40- year, 12% coupon rate bond with semiannual coupons.However, under the bond indenture, the company is relieved ofmaking interest payments (deferred interest) for the first 10years. For the remaining 30 years, the regular interest paymentswould resume. The reorganization calls for the deferred interest tobe paid in 3 equal installments: one payment occurring at the endof year 20, one at the end of year 25, and one at maturity.Calculate the value of a new $1,000 par value bond assuming ayield to maturity of 7%.