A coupon bond that pays interest annually has a par value of $1,000, matures in five 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 by discounting the future cash flows (coupon payments and par value) at the yield to maturity. With a coupon rate of 12%, the annual coupon payment is $120. Discounting these payments and the par value at a 10% yield results in an intrinsic value of approximately $1,075.82.

A Coupon Bond That Pays Interest Annually Has a Par