Final answer:
The bond with a coupon rate higher than the market rate will sell at a premium. A calculation using the present value formula considering semi-annual payments and the market rate will give the precise price, which will be above the bond's face value.
Step-by-step explanation:
To calculate the price of a new bond issue from Things Get Messi Enterprises, we need to consider the current market rate compared to the coupon rate of the bond. Since the coupon rate at 7.00% APR is higher than the current market rate at 6.52% APR, and given that the bond will pay semi-annual coupons, this bond will sell at a premium over its face value.
To find the price of the bond, we use the present value formula for bonds, which is the sum of the present value of the annuity (semi-annual coupon payments) and the present value of the face value amount. Based on the market rate, the bond price can be calculated using the following formula:
P = (C * (1 - (1 + r)^-n)/r) + (F / (1 + r)^n)
Where P is the bond price, C is the semi-annual coupon payment ($35), r is the market interest rate per period (0.0326), and n is the total number of periods (60).
Using a financial calculator or a spreadsheet will provide the precise bond price which will be higher than $1,000 due to the reasons mentioned above.