A coupon bond that pays interest annually has a par value of $1,000, matures in seven years, and has a yield to maturity of 9.3%. The intrinsic value of the bond today will be ______ if the coupon rate is 8.5%.

Question

Quizplus · Accepted Answer

The intrinsic value of the bond is calculated by discounting the future cash flows (coupon payments and par value) at the yield to maturity rate. With a coupon rate of 8.5%, the annual coupon payment is $85. Discounting these payments and the par value of $1,000 at a yield of 9.3% over seven years gives an intrinsic value of approximately $960.14.

A Coupon Bond That Pays Interest Annually Has a Par