Asked by Adeel Mukhtar on May 19, 2024
Verified
A coupon bond that pays interest annually has a par value of $1,000, matures in 5 years, and has a yield to maturity of 12%. If the coupon rate is 9%, the intrinsic value of the bond today will be ________.
A) $856.04
B) $891.86
C) $926.47
D) $1,000
Coupon Bond
A bond that pays the holder a fixed interest rate (coupon payment) over the bond's lifetime, in addition to returning the principal at maturity.
Yield To Maturity
The total return anticipated on a bond if the bond is held until its maturity date, considering all payments and the face value.
Intrinsic Value
The true, inherent, and underlying value of an asset, independent of its market price.
- Calculate the yield to maturity and understand its essentiality.
Verified Answer
LS
LivingLifeWith SuperiorMay 24, 2024
Final Answer :
B
Explanation :
PV0 = $90 
+ 
; PV0 = $891.86
Calculator entries are N = 5, I/Y = 12, PMT = 90, FV = 1,000, CPT PV → −891.86
+ ; PV0 = $891.86Calculator entries are N = 5, I/Y = 12, PMT = 90, FV = 1,000, CPT PV → −891.86
Learning Objectives
- Calculate the yield to maturity and understand its essentiality.