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Homework answers / question archive / Big Manufacturer Corporation's bonds have a 10-year maturity, a 5

Big Manufacturer Corporation's bonds have a 10-year maturity, a 5

Finance

Big Manufacturer Corporation's bonds have a 10-year maturity, a 5.75% coupon rate with interest paid semiannually, and a par value of $1,000. The nominal required rate of return on these bonds is 6.50%. What is the bond's intrinsic value? Enter your answer rounded to two decimal places. Do not enter $ or comma in the answer box. For example, if your answer is $12,300.456 then enter as 12300.46 in the answer box.

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We can calculate the intrinsic value of bond by using the formula in excel:-

=-pv(rate,nper,pmt,fv)

Here,

PV = Intrinsic value of bond

Rate = 6.50%/2 = 3.25% (semiannual)

Nper = 10*2 = 20 periods (semiannual)

Pmt = Coupon payment = 1000*5.75%/2 = 28.75

FV = 1000

Substituting the values in formula:

=-pv(3.25%,20,28.75,1000)

= 945.48

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