A coupon bond that pays interest semi-annually has a par value of $1,000,matures in 5 years,and has a yield to maturity of 10%.The intrinsic value of the bond today will be _________ if the coupon rate is 8%.

Question

Quizplus · Accepted Answer

The intrinsic value of the bond can be calculated using the present value of its cash flows, which include the semi-annual coupon payments and the par value at maturity. With a coupon rate of 8%, the bond pays $40 every six months. The yield to maturity is 10%, or 5% per period. Using the present value formula for each cash flow, the intrinsic value is approximately $922.78.

A Coupon Bond That Pays Interest Semi-Annually Has a Par