Question

a corp.has a bond issue outstanding with a annual coupon rate of 8 percent and

20 years remaining to matunity.The interest payment is paid sermiannually.The par

（face)value of the bond is$1,000.Bond investors require an 11 percent annual rate

of return under present market conditions.That is,the yield to matunity is 11 percent

Determine the intrinsic value of the bond

Answer 1

Coupon Rate = 8%	YTM = 11.00% OR 5.50% On semi annual Basis
	Face value = 1000$			Maturity = 20 Years or 40 Semi annual Periods
	Semi annual Coupon = $1000*8%/2 = $40
Semi annual Periods	Coupon Amount	Redemption	Total Inflows	YTM @5.50%	Discounted Values
1	40.00	0.00	40.00	0.948	37.91
2	40.00	0.00	40.00	0.898	35.94
3	40.00	0.00	40.00	0.852	34.06
4	40.00	0.00	40.00	0.807	32.29
5	40.00	0.00	40.00	0.765	30.61
6	40.00	0.00	40.00	0.725	29.01
7	40.00	0.00	40.00	0.687	27.50
8	40.00	0.00	40.00	0.652	26.06
9	40.00	0.00	40.00	0.618	24.71
10	40.00	0.00	40.00	0.585	23.42
11	40.00	0.00	40.00	0.555	22.20
12	40.00	0.00	40.00	0.526	21.04
13	40.00	0.00	40.00	0.499	19.94
14	40.00	0.00	40.00	0.473	18.90
15	40.00	0.00	40.00	0.448	17.92
16	40.00	0.00	40.00	0.425	16.98
17	40.00	0.00	40.00	0.402	16.10
18	40.00	0.00	40.00	0.381	15.26
19	40.00	0.00	40.00	0.362	14.46
20	40.00	0.00	40.00	0.343	13.71
21	40.00	0.00	40.00	0.325	12.99
22	40.00	0.00	40.00	0.308	12.32
23	40.00	0.00	40.00	0.292	11.67
24	40.00	0.00	40.00	0.277	11.07
25	40.00	0.00	40.00	0.262	10.49
26	40.00	0.00	40.00	0.249	9.94
27	40.00	0.00	40.00	0.236	9.42
28	40.00	0.00	40.00	0.223	8.93
29	40.00	0.00	40.00	0.212	8.47
30	40.00	0.00	40.00	0.201	8.03
31	40.00	0.00	40.00	0.190	7.61
32	40.00	0.00	40.00	0.180	7.21
33	40.00	0.00	40.00	0.171	6.83
34	40.00	0.00	40.00	0.162	6.48
35	40.00	0.00	40.00	0.154	6.14
36	40.00	0.00	40.00	0.146	5.82
37	40.00	0.00	40.00	0.138	5.52
38	40.00	0.00	40.00	0.131	5.23
39	40.00	0.00	40.00	0.124	4.96
40	40.00	1000.00	1040.00	0.117	122.16
			Intrinsic Value Of Bond		759.38 $