A firm has an issue of $1,000 par value bonds with a 12 percent stated interest rate outstanding. The issue pays interest annually and has 10 years remaining to its maturity date. If bonds of similar risk are currently earning 8 percent, the firm's bond will sell for ________ today.

Question

Quizplus · Accepted Answer

The bond's price is calculated using the present value of its future cash flows, which include annual interest payments and the principal at maturity. With a coupon rate of 12% and a market rate of 8%, the bond's price will be higher than its par value, resulting in a price of $1,268.20.

A Firm Has an Issue of $1,000 Par Value Bonds