drop down 1 options: might or well
drop down 2 options: is obligated or would like
drop down 3 options: exceed, be less than, equal
drop down 4 options: at a discount, at par, at a premium
A. Variable drop down: Bond's semiannual coupon payment, Bond's annual coupon payment, Bondholder's required return
A. Variable Value drop down: 35.00, 56,.00, 112.00, 140.00
B Variable Name drop down: Bond's Market Price, Bond's annual coupon payment, Bond's par value
C. Variable Value drop down: 1.75%, 3.50%, 7.00%, 10.50%
next drop down: unreasonable, or reasonable
next drop down: $738, $949, $1,370, $1,054 is equal to, greater than, or less than it's par value, so that the bond is trading at: a discount, par, or a premium
Answer a.
Remember, a bond’s coupon rate partially determines the interest-based return that a bond will pay, and a bondholder’s required return reflects the return that a bondholder would like to receive from a given investment.
Answer b.
When the bond’s coupon rate is greater to the bondholder’s required return, the bond’s intrinsic value will exceed its par value, and the bond will trade at a premium.
When the bond’s coupon rate is less than the bondholder’s required return, the bond’s intrinsic value will be less than its par value, and the bond will trade at a discount.
Answer c.
Unknown Variable A:
Annual Coupon Rate = 7.00%
Semiannual Coupon Rate = 3.50%
Bond’s Semiannual Coupon Payment = 3.50% * $1,000
Bond’s Semiannual Coupon Payment = $35.00
Unknown Variable B:
Bond’s Par Value = $1,000
Unknown Variable C:
Annual Required Return = 7.00%
Semiannual Required Return = 3.50%
Answer d.
Based on this equation and the data, it is reasonable to expect that Grace’s potential bond investment will exhibit an intrinsic value equal to $1,000.
Answer e.
Annual Coupon Rate = 8.00%
Semiannual Coupon Rate = 4.00%
Semiannual Coupon = 4.00% * $1,000
Semiannual Coupon = $40
Annual Required Return = 6.00%
Semiannual Required Return = 3.00%
Time to Maturity = 3 years
Semiannual Period to Maturity = 6
Price of Bond = $40/1.03 + $40/1.03^2 + $40/1.03^3 + $40/1.03^4
+ $40/1.03^5 + $40/1.03^6 + $1,000/1.03^6
Price of Bond = $40 * (1 - (1/1.03)^6) / 0.03 + $1,000 /
1.03^6
Price of Bond = $1,054
Now, consider the situation in which Grace wants to earn a return of 6.00%, but the bond being considered for purchase offers a coupon rate of 8.00%. Again, assume that the bond pays semiannual interest payments and has three years to maturity. If you round the bond's intrinsic value to the nearest whole dollar, then its intrinsic value of $1,054 is greater than its par value, so that the bond is trading at a premium.
Answer f.
When the coupon rate is greater than Grace’s required return, the bond should trade at a premium.
drop down 1 options: might or well drop down 2 options: is obligated or would like...
he process of bond valuation is based on the fundamental concept that the current pice of a security can be determined by calculating the present value of the cash flows that the security will generate in the future There is a consistent and predictable relationship between a bond's coupon rate, its par value, a bondholder's required return, and the bond's resulting intrinsic value. Trading at a discount, trading at a premium, and trading at par refer to particular relationships between...
2. Bond valuation The process of bond valuation is based on the fundamental concept that the current price of a security can be determined by calculating the present value of the cash flows that the security will generate in the future There is a consistent and predictable relationship between a bond's coupon rate, its par value, a bondholder's required return, and the bond's resulting intrinsic value. Trading at a discount, trading at a premium, and trading at par refer to...
The process of bond valuation is based on the fundamental concept that the current price of a security can be determined by calculating the present value of the cash flows that the security will generate in the future. There is a consistent and predictable relationship between a bond's coupon rate, its par value, a bondholder's required return, and the bond's resulting intrinsic value. Trading at a discount, trading at a premium, and trading at par refer to particular relationships between...
4. Bond valuation The process of bond valuation is based on the fundamental concept that the current price of a security can be determined by calculating the present value of the cash flows that the security will generate in the future. There is a consistent and predictable relationship between a bond's coupon rate, its par value, a bondholder's required return, and the bond's resulting intrinsic value. Trading at a discount, trading at a premium, and trading at par refer to...
The process of bond valuation is based on the fundamental concept that the current price of a security can be determined by calculating the present value of the cash flows that the security will generate in the future. There is a consistent and predictable relationship between a bond's coupon rate, its par value, a bondholder's required return, and the bond's resulting intrinsic value. Trading at a discount, trading at a premium, and trading at par refer to particular relationships between...
The process of bond valuation is based on the fundamental concept that the current price of a security can be determined by calculating the present value of the cash flows that the security will generate in the future. There is a consistent and predictable relationship between a bond's coupon rate, its par value, a bondholder's required return, and the bond's resulting intrinsic value. Trading at a discount, trading at a premium, and trading at par refer to particular relationships between...
4. Bond valuation The process of bond valuation is based on the fundamental concept that the current price of a security can be determined by calculating the present value of the cash flows that the security will generate in the future. There is a consistent and predictable relationship between a bond's coupon rate, its par value, a bondholder's required return, and the bond's resulting intrinsic value. Trading at a discount, trading at a premium, and trading at par refer to...
8. Bond valuation The process of bond valuation is based on the fundamental concept that the current price of a security can be determined by calculating the present value of the cash flows that the security will generate in the future. There is a consistent and predictable relationship between a bond's coupon rate, its par value, a bondholder's required return, and the bond's resulting intrinsic value. Trading at a discount, trading at a premium, and trading at par refer to...
Some of my answers are incorrect I need help please . When the bond's coupon rate is equal to the bondholder's required return, the bond's intrinsic value will equal its par value, and the bond will trade at par. . When the bond's coupon rate is greater than the bondholder's required return, the bond's intrinsic value will exceed its par value, and the bond will trade at a premium . When the bond's coupon rate is less than the bondholder's...
Please use the information at the to answer the bottom. The options for the "Now, consider..." paragraph is as follows: 1.) its intrinsic value of... ($741, $1,111, $648, $926). 2.) (rounded to the nearest whole dollar) is... (less than, equal to, greater than) 3.) so that the bond is... (trading at par, trading at a discount, trading at a premium) Will make sure to thumbs up if accurate, thank you! Complete the following table by identifying the appropriate corresponding variables...