A coupon bond that pays interest annually has a par value of $1,000, matures in 5 years, and has a yield to maturity of 12%. If
the coupon rate is 9%, the intrinsic value of the bond today will be _________.
1 answer:
Answer:
$891.86
Explanation:
For computing the intrinsic value of the bond we have to use the present value formula i.e to be shown in the attachment below:
Provided that
Future value = $1,000
Rate of interest = 12%
NPER = 5 years
PMT = $1,000 × 9% = $90
The formula is shown below:
= -PV(Rate;NPER;PMT;FV;type)
So, after applying the above formula, the intrinsic value of the bond today will be $891.86
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Answer:
Return on investment will be 9.38 %
So option (c) will be correct option
Explanation:
We have given purchase price = $60
Dividend received = $0.63
Selling price = $65
We have to find the return on investment
We know that return on investment is given by
Return in investment %
So return on investment will be 9.38 %
So option (c) is the correct option