Assume that a 15-year, $1,000 face value bond pays interest of $37.50 every 3 months. If an investor requires a simple annual rate of return of 12 percent with quarterly compounding, how much should the investor be willing to pay for this bond? (Round the answer to two decimal places.)

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The bond pays $37.50 every 3 months, which is a quarterly coupon payment. The required rate of return is 12% annually, or 3% quarterly. The bond has 60 periods (15 years * 4 quarters). Using the present value of an annuity formula for the coupon payments and the present value of a lump sum for the face value, the price is calculated as $1,207.57.

Assume That a 15-Year, $1,000 Face Value Bond Pays Interest