Coupon rate is what the bond will pay
Required rate is what the bondholder would like to receive
Equal
If coupon rate is higher, the intrinsic value will be greater than par i.e. exceed
Trade at discount
Semi annual coupon rate 12.25%/2 = 6.125% or semi annual payment = $61.25
Par value/Face value = $1,000
Semi-annual required return = 7%/2 = 3.5%
Since the required return is less than coupon rate, bond will trade at premium
Hence, it is reasonable to expect
Intrinsic value = 61.25*PVAF(5.125%, 6 periods) + 1,000*PVF(5.125%, 6 periods)
= 61.25*5.0555+1,000*0.741
= $1,050.65
Greater than par value
Bond is trading at premium
The correct statement is
When the coupon rate is greater than required return, bond should trade at a premium
4. 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...
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...
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...
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...
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...
3. 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...
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...
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...