A bond will pay $75 in interest at the end of each of the next four years plus the $1,000 principal at the end of four years. If the yield-to-maturity should be 6%, the bond's intrinsic value is
A) treasury issue rates.
B) the investor's personal return requirement.
C) S and P's 500 dividend yield rates.
D) spot rates.

Question

Quizplus · Accepted Answer

The intrinsic value of a bond is calculated using the present value of its future cash flows, which includes interest payments and the principal repayment, discounted at the yield-to-maturity rate. Spot rates, which are the yields on zero-coupon Treasury securities for different maturities, are often used for this calculation, not the options listed in A, B, or C.

A Bond Will Pay $75 in Interest at the End