Final answer:
To retire Baldwin's 12.5s2030 bond early, the amount of cash needed is $964.
Step-by-step explanation:
To calculate the amount of cash needed to retire Baldwin's 12.5s2030 bond early, we need to determine the bond's price when its interest rate is less than the market rate. Assuming the interest rates are now 12%, we can calculate the present value of the bond's expected payments one year from now.
Using an alternative investment, we can invest $964 and receive $1,080 a year from now, with an interest rate of 12%.
We can calculate the present value by dividing the future cash flow ($1,080) by 1 plus the interest rate (0.12), then subtracting the result from the initial investment ($964).
Therefore, the amount of cash needed to retire Baldwin's 12.5s2030 bond early is $964.