Unknown A; \"VARIABLE NAME \"(bonds market price, bonds semiannual coupon paymen

ID: 2579774 • Letter: U

Question

Unknown A; "VARIABLE NAME "(bonds market price, bonds semiannual coupon payment, bondholder's required returns )
"VARIABLE VALUE " :($70.00 , 52.50, 17.50, 35.00)

Unknown B; "VARIABLE NAME" (bond's par value, semiannuel coupon payment, bonds annual coupon payment)
C) "VARIABLE VALUE" (3.8125%, 4.3750%, 7,1250%, 3.5000%)
Based on this equation and the data (reasonable, unreasonable) to expect ..
Then its intrinsic value of ($1,372, 844$, 739$, 1,055$)..
Rounded to the nearest whole dollar is (equal to, greater than , less than )..
Its par value, so that the bonds is (trading at par , trading at a discount, trading a premium)
Given your computation and conclusions, which of the following statement is true ?

For example, assume Sophia wants coupon rate ( to earn a return of 7.00% and is offered the opportunity to purchase a $1,000 par value bond that pays a 7.00% with three years remaining to maturity. The following formula can be used to compute the bond's intrinsic variables used in the equation. $1,000 Semiannual required return Based on this equation and the data, it is equal to $1,000. Now, consider the situation in which Sophia wants to earn a return of 5.00%, but the bond being considered for purchase offers a coupon rate of 7.00%. 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 dolar, then its intrinsic value of bond is (rounded to the nearest whole dollar) is its par value, so that the Given your computation and conclusions, which of the following statements is true? O When the coupon rate is greater than Sophia's required return, the bond should trade at a discount. when the coupon rate is greater than Sophia's required return, the bond should trade at a premium O When the coupon rate is greater than Sophia's required return, the bond's intrinsic value will be less than its par value O A bond should trade at a par when the coupon rate is greater than Sophia's required return.

Explanation / Answer

Unknown

variable name

variable value

bond semiannual coupon payment

Bonds par value

1000

semiannual required return

3.50%

It is reasonable to expect

Year

cash flow

present value of cash flow = cash flow/(1+r)^n r= 5/2 = 2.5%

34.14634

33.3135

32.50098

31.70827

30.9349

1035

892.4773

value of bond

sum of present value of cash flow

1055.081

Greater than

trading at premium

Answer is 2nd