A corporate bond has an 8

Finance Dec 22, 2020

A corporate bond has an 8.5% coupon rate, pays interest semiannually, and matures in 15 years. The bond's par value is $1,000. If the investors' annual required rate of return is 10%, the intrinsic value of the bond should be: SBS O 5923 O 51.156 o 51231 51.220

Expert Solution

Intrinsic value of bond = Interest * PVAF (5% , 30) + MV * PVF(5% , 30)

= (1000 * 8.5% *6/12) * (1 - (1/(1.05)³⁰ ) / 0.05 + 1000 * (1/(1.05)³⁰ )

= 653.33 + 231.38

= 884.71 or 885

Therefore correct answer is A 885

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