Question

Big Manufacturer Corporation's bonds have a 10-year maturity, a 5.75% coupon rate with interest paid semiannually, and a par value of $1,000. The nominal required rate of return on these bonds is 7.50%. What is the bond’s intrinsic value? Enter your answer rounded to two decimal places. Do not enter $ or comma in the answer box. For example, if your answer is $12,300.456 then enter as 12300.46 in the answer box.

Answer 1

K = Nx2

Bond Price =∑ [(Semi Annual Coupon)/(1 + YTM/2)^k]     +   Par value/(1 + YTM/2)^Nx2

k=1

K =10x2

Bond Price =∑ [(5.75*1000/200)/(1 + 7.5/200)^k]     +   1000/(1 + 7.5/200)^10x2

k=1

Bond Price = 878.41