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Due on Jul 28 at 1150 PM EDT The process or bond valuation is based on the fundamental concept that the aurrent price of a security can be determined by calculating the present value of the cash fows that the security wil 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 partialar relationships between a bond's intrinsic value and its par value. These result from the relationship between a bond's coupon rate and a bondholders required rate of return. Remember, a bond's coupon rate partially determines the interest-based return that a bond pay, and a bondholders required return reflects the return that a bondholder to receive from a given investment. might The mathematics or bond valuation imply a predictable relationship between the bond's coupon rate, the bondholders 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 bondholders 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 re the bonds intrinsic value will be less than its par value, and the bond will trade at For example, assume Ella wants to earn a return of 8.75% and is offered the opportunity to bond that pays a 7.50% coupon rate (distributed years remaining purchase a$1000 par value the bond's intrinsic semiannually with three to maturity. The following formula can be used to compute