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For example assume Sophia wants to earn a return of 7 00 and is offered...

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Basic Math

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For example assume Sophia wants to earn a return of 7 00 and is offered the opportunity to purchase a 1 000 par value bond that pays a 7 00 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 1 C 1 0 Unknown Variable Name A B Complete the following table by identifying the appropriate corresponding variables used in the equation IS 1 0 1 0 1 0 Based on this equation and the data it is value equal to 1 000 Semiannual required return Variable Value 1 000 to expect that Sophia s potential bond investment is currently exhibiting an intrinsic Now consider the situation in which Sophia wants to earn a return of 5 00 but the bond being considered for purchase offers a coupon rate of 7 00 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 rounded to the nearest whole dollar is its par value so that the bond

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