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 12%.

Question

Quizplus · Accepted Answer

The intrinsic value of the bond is calculated using the present value of its future cash flows, which include semi-annual coupon payments and the par value at maturity. Given a 12% coupon rate, the bond pays $60 every six months. Using a yield to maturity of 10% (or 5% per period), the present value of these cash flows results in an intrinsic value of approximately $1,077.22.

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