Question

A coupon bond that pays interest annually has a par value of $1,000, matures in 5 years, and has a yield to maturity of 12%. If the coupon rate is 9%, the intrinsic value of the bond today will be _________.

Answer 1

$891.86

Step-by-step explanation:

For computing the intrinsic value of the bond we have to use the present value formula i.e to be shown in the attachment below:

Provided that

Future value = $1,000

Rate of interest = 12%

NPER = 5 years

PMT = $1,000 × 9% = $90

The formula is shown below:

= -PV(Rate;NPER;PMT;FV;type)

So, after applying the above formula, the intrinsic value of the bond today will be $891.86