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For example, assume Grace wants to n a return of 9.00% and is offered the opportunity to purchase a $1,000 vate bond that pays a 15.7 coupon rate (distributed semiannually) with three years remaining to maturity. The following formula can be used to compute the bond's intrinsic value: Intrinsic Value Complete the following table by identiflying the appropriate corresponding variables used in the equation Variable Name Variable Value $1,000 Semiannual required return Based on this equation and the data, itis greater than $1,000 s expect that Grace's potential bond investment is currently exhibiting an intrinsic value Now, consider the situation in which Grace wants to earn a return of 13.75%, but the bond being considered for purchase offers a coupon rate of 15.75% Again, asune that the bond interest the nearest whole ns "hen its ntrinsic value of bond is pays semiannual interest payments and has three years to maturity. If you round the bond's intrinsic value to (rounded to the nearest whole dollar) is ts par value, so that the Given your computation and conclusions, which of the following statements is true? O A bond should trade at a par when the coupon rate is greater than Grace O When the coupon rate is greater than Grace's required return, the bond should trade at a discount. O when the coupon rate is Grace's required O When the coupon rate is greater than Grace's required return, the bond should trade at a premium. greater than Grace's requred return, the bond's intr sic value be less than its par value

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