Unknown A: \"Variable Value\"( $25.00 , $200.00, $75.00 or $50.00) Unknown C : \

Question

Unknown A: "Variable Value"( $25.00 , $200.00, $75.00 or $50.00)
Unknown C : "variable Value" (6.5000% , 6.0000% , 4.3750 or 5.7525% )
"Then its intrinsic value of" ( $1,368, $1,262, $1,052 or $842)
"(Rounded to the nearest whole dollar ) is" (greater than, less than or equal to )
"Its par value, so that the is bond" (Trading at a premium, trading at a discount or trading at par )
Unknown A: "Variable Value"( $25.00 , $200.00, $75.00 or $50.00)
Unknown C : "variable Value" (6.5000% , 6.0000% , 4.3750 or 5.7525% )
"Then its intrinsic value of" ( $1,368, $1,262, $1,052 or $842)
"(Rounded to the nearest whole dollar ) is" (greater than, less than or equal to )
"Its par value, so that the is bond" (Trading at a premium, trading at a discount or trading at par )
wiee yeals tu matty.THe föllowing formula can be used to compute the bond's intrinsic value: Intrinsic ValueS Complete the following table by identifying the appropriate corresponding variables used in the equation. Unknown Variable Value Variable Name Bond's semiannual coupon payment Bond's par value Semiannual required return $1,000 Based on this equation and the data, it is less than $1,000. to expect that Eilla's potential bond investment is currently exhibiting an intrinsic value Now, consider the situation in which Ella wants to earn a return of 8.00%, but the bond being considered for purchase offers a coupon rate of 10.00%. 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 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 A bond should trade at a par when the coupon rate is greater than Ella's required return. O When the coupon rate is greater than Ella's required return, the bond's intrinsic value will be less than its par value. O When the coupon rate is greater than Ella's required return, the bond should trade at a discount O When the coupon rate is greater than Ella's required return, the bond should trade at a premium.

Explanation / Answer

A = 25
B = $1000
C = 5.7525%
Intrinsic value = $842
Intrinsic Value = $25/(1.057525)^1 + $25/(1.057525)^2 + $25/(1.057525)^3 +$25/(1.057525)^4 + $25/(1.057525)^5 +$25/(1.057525)^6 + $1000/(1.057525)^6 = $842
E = $1052
Intrinsic Value = $50/(1.04)^1 + $50/(1.04)^2 + $50/(1.04)^3 + $50/(1.04)^4 + $50/(1.04)^5 + $50/(1.04)^6 + $1000/(1.04)^6 = $1052
F = greater than
G = Trading at a premium
H = (option d )When coupon rate is greater than Ella's required rate of return than bond is trading at Premium.

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