For example, assume Ethan wants to earn a return of 8.00% and is offered the opportunity...
For example, assume Ethan wants to earn a return of 8.00% and is offered the opportunity to purchase a $1,000 par value bond that pays a 14.00% coupon rate (distributed semiannually) with three years remaining to maturity. The following formula can be used to compute the bond’s intrinsic value:
| Intrinsic ValueIntrinsic Value | = = | A(1+C)1+A(1+C)2+A(1+C)3+A(1+C)4+A(1+C)5+A(1+C)6+B(1+C)6A1+C1+A1+C2+A1+C3+A1+C4+A1+C5+A1+C6+B1+C6 |
Complete the following table by identifying the appropriate corresponding variables used in the equation.
|
Unknown |
Variable Name |
Variable Value |
|---|---|---|
| A | ||
| B | $1,000 | |
| C | Semiannual required return |
Based on this equation and the data, it is to expect that Ethan’s potential bond investment is currently exhibiting an intrinsic value greater than $1,000.
Now, consider the situation in which Ethan wants to earn a return of 12.00%, but the bond being considered for purchase offers a coupon rate of 14.00%. 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 (rounded to the nearest whole dollar) is its par value, so that the bond is .
Given your computation and conclusions, which of the following statements is true?
When the coupon rate is greater than Ethan’s required return, the bond should trade at a premium.
When the coupon rate is greater than Ethan’s required return, the bond’s intrinsic value will be less than its par value.
When the coupon rate is greater than Ethan’s required return, the bond should trade at a discount.
A bond should trade at a par when the coupon rate is greater than Ethan’s required return.
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For example, assume Ethan wants to earn a return of 8.00% and is
offered the opportunity...
For example, assume Ella wants to earn a return of 8.00% and is offered the opportunity...
For example, assume Ella wants to earn a return of 8.00% and is offered the opportunity to purchase a $1,000 par value bond that pays a 8.00% coupon rate (distributed semiannually) with three years remaining to maturity. The following formula can be used to compute the bond's intrinsic value: Intrinsic Value - od toga + ad font confort de tenir + altojo + autoga + autorom Complete the following table by identifying the appropriate corresponding variables used in the equation....
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For example, assume Oliver wants to earn a return of 12.00% and is offered the opportunity...
For example, assume Oliver wants to earn a return of 12.00% and is offered the opportunity to purchase a $1,000 par value bond that pays a 10.00% coupon rate (distributed semiannually) with three years remaining to maturity. The following formula can be used to compute the bond's intrinsic value: Intrinsic Value = do.1 +040* + 0,40 + fcy* + others + otcovo + detery Complete the following table by identifying the appropriate corresponding variables used in the equation. Variable Value...
3. Bond valuation The process of bond valuation is based on the fundamental concept that the...
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For example, assume Sophia wants to earn a return of 12.25% and is offered the opportunity to purchase a $1,000 par val...
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Some of my answers are incorrect I need help please . When the bond's coupon rate...
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...
5. Bond valuation The process of bond valuation is based on the fundamental concept that the current price of a security...
5. 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...
2. Bond valuation The process of bond valuation is based on the fundamental concept that the...
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...
Variable Name options are: "Bond' semiannual coupon payment" "bonds annual coupon payment" "bondholders required return" For...
Variable Name options are:
"Bond' semiannual coupon payment" "bonds annual coupon payment"
"bondholders required return"
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omplete the following table by identifying the appropriate corresponding variables used in the equation. Variable Value...
omplete the following table by identifying the appropriate corresponding variables used in the equation. Variable Value $70.00 $1,000 7.1250% Unknown Variable Name Bond's semiannual coupon payment Semiannual required return Based on this equation and the data, it is reasonable greater than $1,000. to expect that Sophia's potential bond investment is currenty exhibiting an intrinsic value Now, consider the situation in which Sophia wants to earn a return of 17%, but the bond being considered for purchase offers a coupon rate...
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For example, assume Olivia wants to earn a return of 12.00% and is offered the opportunity to purchase a $1,000 par value bond that pays a 10.00% coupon rate (distributed semiannually) with three years remaining to maturity. The following formula can be used to compute the bond's intrinsic value: A A Intrinsic Value = A (1+C)3 (1+C) ' (1+C)2 (1+0)4' А (1+ C)5. (1+C)6 ' (1+C)6 2017 Complete the following table by identifying the appropriate corresponding variables used in the...
For example, assume Oliver wants to earn a return of 12.00% and is offered the opportunity to purchase a $1,000 par value bond that pays a 10.00% coupon rate (distributed semiannually) with three years remaining to maturity. The following formula can be used to compute the bond's intrinsic value: Intrinsic Value = do.1 +040* + 0,40 + fcy* + others + otcovo + detery Complete the following table by identifying the appropriate corresponding variables used in the equation. Variable Value...
For example, assume Sophia wants to earn a return of 12.25% and is offered the opportunity to purchase a $1,000 par value bond that pays a 10.50% coupon rate (distributed semiannually) with three years remaining to maturity. The following formula can be used to compute the bond's intrinsic value: Intrinsic Value = (tot + oto + doto + dom + top + difco + oma Complete the following table by identifying the appropriate corresponding variables used in the equation. Unknown...
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...
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...
Variable Name options are:
"Bond' semiannual coupon payment" "bonds annual coupon payment"
"bondholders required return"
For example, assume Noah wants to earn a return of 15.75% and is offered the opportunity to purchase a $1,000 par value bond that pays a 18.00% coupon rate (distributed semiannually) with three years remaining to maturity. The following formula can be used to compute the bond's intrinsic value Intrinsic Value zGL t 7. 07 Complete the following table by identifying the appropriate corresponding variables...
omplete the following table by identifying the appropriate corresponding variables used in the equation. Variable Value $70.00 $1,000 7.1250% Unknown Variable Name Bond's semiannual coupon payment Semiannual required return Based on this equation and the data, it is reasonable greater than $1,000. to expect that Sophia's potential bond investment is currenty exhibiting an intrinsic value Now, consider the situation in which Sophia wants to earn a return of 17%, but the bond being considered for purchase offers a coupon rate...
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