SWH Corporation issued bonds on January 1,2004.The bonds had a coupon rate of 5.5%,with interest paid semiannually.The face value of the bonds is $1,000 and the bonds mature on January 1,2019.What is the intrinsic value of an SWH Corporation bond on January 1,2010 to an investor with a required return of 7%?

Question

Quizplus · Accepted Answer

The intrinsic value of the bond is calculated by discounting the future cash flows (coupon payments and face value) at the investor's required return rate of 7%. The bond has 18 remaining semiannual periods, and the semiannual coupon payment is $27.50. Using the present value formula for bonds, the intrinsic value is approximately $901.08.

SWH Corporation Issued Bonds on January 1,2004