Six years ago,Colt,Inc.sold an issue of 30-year,$1,000 face 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

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The current market price of the bond is calculated using the present value of its future cash flows, which include the annual coupon payments and the face value at maturity, discounted at the current required rate of return (8.375%). Given the bond's coupon rate of 5.25% on a $1,000 face value, the annual coupon payment is $52.50. With 24 years remaining (30 years minus 6 years), the present value of these cash flows at 8.375% results in a price of approximately $681.

Six Years Ago,Colt,Inc