Question

six years ago, colt, inc. sold an issue of 30-year, $1,000 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 of the bonds? round off to the nearest $1.

Answer 1

The current market price of the bonds is $681.

What is meant by bonds?

• In order to raise money from investors who are ready to provide a loan to them for a specific period of time, borrowers issue bonds.
• Purchasing a bond entails lending money to the issuer, which could be a corporate, government, or local authority.
• A bond can be thought of as an investor's loan to a borrower, such as a business or the government.
• While the investor earns interest on their investment, the borrower utilizes the money to finance its activities.
• When market interest rates fall below the rate on the bond, the issuer may decide to call the bond.
• In this manner, the bond can be repaid and a new bond with a reduced interest rate can be issued, saving the issuer money.

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