A coupon bond issued by an Australian company in Sydney pays annual interest, has a par value of $1,000, matures in 5 years, has a coupon rate of 13.33% per annum, and has a yield to maturity of 4.77% per annum. The current intrinsic value of the bond should be $Answer Question 5. (Note: answer must be accurate to nearest cent, or 2 decimal places but you may leave your answer with more than 2 decimal places.)
Question
A coupon bond issued by an Australian company in Sydney pays annual interest, has a par value of Answer Question 5. (Note: answer must be accurate to nearest cent, or 2 decimal places but you may leave your answer with more than 2 decimal places.)
Solution
To calculate the intrinsic value of the bond, we need to calculate the present value of the annual coupon payments and the present value of the par value at maturity.
Step 1: Calculate the annual coupon payment The annual coupon payment is calculated by multiplying the par value of the bond by the coupon rate. Coupon Payment = Par Value * Coupon Rate Coupon Payment = 133.30
Step 2: Calculate the present value of the annual coupon payments The present value of the annual coupon payments is calculated by summing the present values of each individual payment. The present value of each payment is calculated by dividing the payment by (1 + yield to maturity) raised to the power of the payment number (i.e., the year). PV of Coupon Payments = ∑ (Coupon Payment / (1 + Yield to Maturity) ^ Year) PV of Coupon Payments = 133.30 / (1 + 4.77%) ^ 2 + 133.30 / (1 + 4.77%) ^ 4 + $133.30 / (1 + 4.77%) ^ 5
Step 3: Calculate the present value of the par value at maturity The present value of the par value at maturity is calculated by dividing the par value by (1 + yield to maturity) raised to the power of the maturity (i.e., 5 years). PV of Par Value = Par Value / (1 + Yield to Maturity) ^ Maturity PV of Par Value = $1,000 / (1 + 4.77%) ^ 5
Step 4: Calculate the intrinsic value of the bond The intrinsic value of the bond is calculated by adding the present value of the annual coupon payments and the present value of the par value at maturity. Intrinsic Value = PV of Coupon Payments + PV of Par Value
After calculating the above steps, you will get the intrinsic value of the bond.
Similar Questions
A coupon bond that pays interests half yearly has a par value of $100. The bond matures in 12 years and has an annual yield to maturity of 6.5%. If the annual coupon rate is 11.65%, calculate the intrinsic value of the bond today.
The Australian Treasury is issuing 10-year bonds that have a face value of $100 paying half-yearly coupons at 4% p.a. The bonds mature at par. Spencer purchases the bonds at the issue date that are priced at a yield to maturity of 5.2% p.a. Calculate the size of each coupon payment giving your answer correct to the nearest cent.
A 3% coupon rate bonds issued in Australia pays coupons A. $6 in total per year B. $30 twice a year C. $3 once a year D. $1.5 twice a year
An Australian government bond maturing in 8 years has a fixed coupon rate of 1% pa, paid semi-annually.The bond's yield-to-maturity (YTM) is currently 3% pa, given as an annualised percentage rate (APR) compounding semi-annually.The face value of the bond is $100. Calculate the bond price. All answer options below are rounded to 6 decimal points.Question 2Select one:a.$115.339925b.$108.285671c.$108d.$101e.$85.868736
Whatever, Incorporated, has a bond outstanding with a coupon rate of 5.76 percent and semiannual payments. The yield to maturity is 6.3 percent and the bond matures in 21 years. What is the market price if the bond has a par value of $1,000?
Upgrade your grade with Knowee
Get personalized homework help. Review tough concepts in more detail, or go deeper into your topic by exploring other relevant questions.