Applebee sold an issue of 30-year,$1,000 face 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, discounted at the current market rate of interest (7.25%). The bond has 25 years remaining, and the annual coupon payment is $87.50 (8.75% of $1,000). The present value of these cash flows at 7.25% results in a price of approximately $1,171.

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