question archive Chapter o7-part MindTap cengage Lear Home ImyUVU nce question I Cheg C D ng cengage com/ 4/9/05&nbNodeld 169292851&deploymentld-551651200 33936369853665 /18keISBN-9781 arentld 169293108 MINDTAP Chapter 07 Part I Activity Information Due Today at :59 PM MDT The process of bond valuation is based on the fundamental concept that the current price of a security can be determined by calculating the present value of the cash flows that the security will generate in the future
Chapter o7-part MindTap cengage Lear Home ImyUVU nce question I Cheg C D ng cengage com/ 4/9/05&nbNodeld 169292851&deploymentld-551651200 33936369853665 /18keISBN-9781 arentld 169293108 MINDTAP Chapter 07 Part I Activity Information Due Today at :59 PM MDT The process of bond valuation is based on the fundamental concept that the current price of a security can be determined by calculating the present value of the cash flows that the security will generate in the future
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Chapter o7-part MindTap cengage Lear Home ImyUVU nce question I Cheg C D ng cengage com/ 4/9/05&nbNodeld 169292851&deploymentld-551651200 33936369853665 /18keISBN-9781 arentld 169293108 MINDTAP Chapter 07 Part I Activity Information Due Today at :59 PM MDT The process of bond valuation is based on the fundamental concept that the current price of a security can be determined by calculating the present value of the cash flows that the security will generate in the future. There is a consistent and predictable relationship between a bond's coupon rate, its par value, a bondholder's required return, and the bond's resulting intrinsic value. Trading at a discount, trading at a premium, and trading at par refer to particular relationships between a bond's intrinsic value and its par value. These result from the relationship between a bond's coupon rate and a bondholder's required rate of return Remember, a bond's coupon rate partially determines the interest-based return that a bond pay, and a bondholder's required return reflects the return hat a bondholde to receive from a given investment. The mathematics of bond valuation imply a predictable relationship between the bond's coupon rate, the bondholder's required return, the bond's par value, and its intrinsic value. These relationships can be summarized as follows When the bond's coupon rate is equal to the bondholder's required return, the bond's intrinsic value will equal its par value, and the bond will trade at par When the bond's coupon rate is greater to the bondholder's required return, the bond's intrinsic value will its par value, and the bond will trade at a premium When the bond's coupon rate is less than the bondholder's required return, the bond's intrinsic value will be less than its par e, and the bond will trade at For example, assume Liam wants to earn a return of 10.50% and is offered the opportunity to purchase a $1,000 par value bond that pays a 12.00% coupon rate (distributed semiannually) with three years remaining to maturity. The following formula can be used to compute the bond's intrinsic value a Ask me any omar Bashniny 2 AM 3/12/2017
