Lrq inc. issued bonds on july 1, 2006. the bonds had a coupon rate of 5.5%, with interest paid semiannually. the face value of the bonds is $1,000 and the bonds mature on july 1, 2021. what is the intrinsic value of an lrq corporation bond on july 1, 2012 to an investor with a required return of 7%?

The face value of the bond is 1,000 and its coupon rate of 5.5% with semi annual payments, which means that 2 payments are made each year. In order to find the amount of each payment we calculate the 5.5% of 1,000 and divide it by 2

1000*0.055/2= 27.5 is Payment

The bond is to be valued at 2012 and has a maturity till 2021 so the number of years to maturity is 9 years which means that the total number of payments are 18 (9*2). The required rate of return is 7%and we will divide it by 2 as payments are semiannual, so we can assume the ytm of the bond is 3.5%. Now as we know the payment, face value, ytm and number of periods we can put this information in a financial calculator and find the price or present value or intrinsic value of the bond.

FV= 1,000

PMT= 27.5

N= 18

I= 3.5

Compute PV = 901.07

The price or present value or intrinsic value of the bond is $901.07

Explanation:

answer; rapid growth in buyer demand and high buyer switching cost;

answersituation analysis;