Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Based on this equation and the data, it is
greater than $1,000.
to expect that Ethan's potential bond investment is currently exhibiting an intrinsic value
Now, consider the situation in which Ethan wants to earn a return of 15%, but the bond being considered for purchase offers a coupon rate of
12.25%. Again, assume that the bond pays semiannual interest payments and has three years to maturity. If you round the bond's intrinsic value to
the nearest whole dollar, then its intrinsic value of
bond is
(rounded to the nearest whole dollar) is
its par value, so that the
Given your computation and conclusions, which of the following statements is true?
when the coupon rate is greater than Ethan's required return, the bond's intrinsic value will be less than its par value.
O When the coupon rate is greater than Ethan's required return, the bond should trade at a discount.
O When the coupon rate is greater than Ethan's required return, the bond should trade at a premium.
O A bond should trade at a par when the coupon rate is greater than Ethan's required return
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Transcribed Image Text:Based on this equation and the data, it is greater than $1,000. to expect that Ethan's potential bond investment is currently exhibiting an intrinsic value Now, consider the situation in which Ethan wants to earn a return of 15%, but the bond being considered for purchase offers a coupon rate of 12.25%. Again, assume that the bond pays semiannual interest payments and has three years to maturity. If you round the bond's intrinsic value to the nearest whole dollar, then its intrinsic value of bond is (rounded to the nearest whole dollar) is its par value, so that the Given your computation and conclusions, which of the following statements is true? when the coupon rate is greater than Ethan's required return, the bond's intrinsic value will be less than its par value. O When the coupon rate is greater than Ethan's required return, the bond should trade at a discount. O When the coupon rate is greater than Ethan's required return, the bond should trade at a premium. O A bond should trade at a par when the coupon rate is greater than Ethan's required return
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