Assume a company has an issue of 18-year $1,000 par value bonds that pay 7% interest, annually. Further assume that today's required rate of return on these bonds is 5%. How much would these bonds sell for today? Round off to the nearest $1.
Required to show the following 3 steps for this problem:
(i) Describe and interpret the assumptions related to the problem.
(ii) Apply the appropriate mathematical model to solve the problem. Describing the breakdown of what each variable does for the problem.
(iii) Calculate the correct solution to the problem.