EXPLAIN WHY PLZ What is the current market price (the intrinsic value) of the bo
ID: 2637979 • Letter: E
Question
EXPLAIN WHY PLZ
What is the current market price (the intrinsic value) of the bond D?.
The answer should be calculated to two decimal places.
You can use financial calculator, or Excel financial function PV.
The Current Market Annual Interest Rate (r)
Number of Years to Maturity (n)
Annual Coupon Rate, (paid annually) (k)
Par Value
Current Market Price of the Bond (the Bond Intrinsic Value)
Bond A
7%
20
13%
$1,000
Bond B
6.5%
12
5.7%
$1,000
Bond C
4.3%
9
8.3%
$1,000
Bond D
15.8%
30
11.5%
$5,000
Question options:
a) 926.73
b)1,293.39
c)976.92
d)1,164.82
The Current Market Annual Interest Rate (r)
Number of Years to Maturity (n)
Annual Coupon Rate, (paid annually) (k)
Par Value
Current Market Price of the Bond (the Bond Intrinsic Value)
Bond A
7%
20
13%
$1,000
Bond B
6.5%
12
5.7%
$1,000
Bond C
4.3%
9
8.3%
$1,000
?Bond D
15.8%
30
11.5%
$5,000
Explanation / Answer
Bond A-
Sum of PVF @ 7% for 20 year=10.594
PVF for year 20=.258
Intrinsic Value of Bond=PV of Interest +PV OF Maturity Amount
=(130*10.594)+(1000*.258)
=$ 1635.22
Bond B-
Sum of PVF @ 6.50% for 12 year=8.159
PVF for year 12=.469
Intrinsic Value of Bond=PV of Interest +PV OF Maturity Amount
=(57*8.159)+(1000*.469)
=$ 934.06
Bond C-
Sum of PVF @ 4.30% for 9 year=7.334
PVF for year 9=.684
Intrinsic Value of Bond=PV of Interest +PV OF Maturity Amount
=(83*7.334)+(1000*.684)
=$ 1292.72
Bond D-
Sum of PVF @ 15.80% for 30 year=6.251
PVF for year 30=.012
Intrinsic Value of Bond=PV of Interest +PV OF Maturity Amount
=(575*6.251)+(5000*.012)
=$ 3654.32
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