Applebee sold an issue of 30-year,$1,000 par value bonds to the public.The coupon rate of 8.75% is payable annually.It is now five years later,and the current market rate of interest is 7.25%.What is the current market price (intrinsic value)of the bonds? Round off to the nearest $1.

Question

Quizplus · Accepted Answer

The current market price of the bond can be calculated using the present value of future cash flows, which include the annual coupon payments and the face value at maturity. Given the coupon rate of 8.75% and a market rate of 7.25%, the bond's price will be higher than its par value because the coupon rate is higher than the market rate. Calculating the present value of the bond's cash flows results in approximately $1,171.

Applebee Sold an Issue of 30-Year,$1,000 Par Value Bonds to the Public.The