Six years ago, Colt Ltd sold an issue of 30-year, $1000 par value bonds.The coupon rate of 5.25% is payable annually.Investors presently require a rate of return of 8.375%.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 is calculated using the present value of future cash flows, which include annual coupon payments and the par value at maturity, discounted at the required rate of return (8.375%). Given the bond's coupon rate of 5.25% and the remaining 24 years to maturity, the intrinsic value is approximately $681.

Six Years Ago, Colt Ltd Sold an Issue of 30-Year