Question

a coupon bond that pays interest annually has par vaiue of $1000 mature in two years and has required rate of return of 10%. the intrinsic vakue of the bond today will be......... if the the coupon rate is 6%

Answer 1

Information provided:

Face value= future value= $1,000

Time= 2 years

Coupon rate= 6%

Coupon payment= 0.06*1,000= $60

Yield to maturity= 10%

The intrinsic value of the bond is calculated by computing the present value.

Enter the below in a financial calculator to compute the present value:

FV= 1,000

PMT= 60

I/Y= 10

N= 2

Press the CPT key and PV to compute the present value.

The value obtained is 930.58.

Therefore, the intrinsic value of the bond is $930.58.