How do you find the intrinsic value of a bond? and PJ Bond @ Fest 10 - 10.28.11-22

How do you find the intrinsic value of a bond?

SWH Corporation issued bonds on January 1, 2004. 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 January 1, 2019. What is the intrinsic value of an SWH Corporation bond on January 1, 2010 to an investor with a required return of 7%?


Bond best answer:

Answer by Marc
You can solve this manually, but I used the Present Value function in Excel to solve this. I also double checked the answer on my HP12C financial calculator, and the answer came back the same.

You need to enter:

-$ 1,000 as the Future Value
-$ 27.50 ($ 1,000 X 5.5% / 2) as the Payment
30 (15 X 2) as the Number of Periods
3.5% (7% / 2) as the Rate

Now solve for the Present Value.

The answer comes back as $ 862.06

That is the maximum amount the investor would pay for the bond

Bond

PJ Bond @ Fest 10 - 10.28.11-22


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