Question

a
coupon bond that pays interest semi- annually has a par value of
$1000, matures in 8years and has a yield to maturity of 6%. If the
coupon rate is 7% the intrinstic value of the bond today will
be?

Answer #1

Answer a.

Par Value = $1,000

Discount = $84.52

Present Value = Par Value - Discount

Present Value = $1,000 - $84.52

Present Value = $915.48

Answer b.

Par Value = $1,000

Annual Coupon Rate = 7.00%

Semiannual Coupon Rate = 3.50%

Semiannual Coupon = 3.50% * $1,000

Semiannual Coupon = $35

Time to Maturity = 8 years

Semiannual Period = 16

Annual YTM = 6.00%

Semiannual YTM = 3.00%

Intrinsic Value of Bond = $35 * PVIFA(3.00%, 16) + $1,000 *
PVIF(3.00%, 16)

Intrinsic Value of Bond = $35 * (1 - (1/1.03)^16) / 0.03 + $1,000 /
1.03^16

Intrinsic Value of Bond = $1,062.81

a. Consider a coupon bond that pays interest of $60 annually,
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