assume Ella wants to earn a return of 8.00% and is offered the opportunity to purchase a $1,000 par value bond that pays a 8.00% coupon rate (distributed semiannually) with three years remaining to maturity. The following formula can be used to compute the bonds intrinsic value:

Intrinsic ValueIntrinsic Value

= =

A(1+C)1+A(1+C)2+A(1+C)3+A(1+C)4+A(1+C)5+A(1+C)6+B(1+C)6A1+C1+A1+C2+A1+C3+A1+C4+A1+C5+A1+C6+B1+C6

Complete the following table by identifying the appropriate corresponding variables used in the equation.

Unknown	Variable Name	Variable Value
A
B		$1,000
C	Semiannual required return

Based on this equation and the data, it is to expect that Ellas potential bond investment is currently exhibiting an intrinsic value equal to $1,000.

Now, consider the situation in which Ella wants to earn a return of 11%, but the bond being considered for purchase offers a coupon rate of 8.00%. Again, assume that the bond pays semiannual interest payments and has three years to maturity. If you round the bonds 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 is .

Given your computation and conclusions, which of the following statements is true?

When the coupon rate is less than Ellas required return, the intrinsic value will be greater than its par value.

When the coupon rate is less than Ellas required return, the bond should trade at a premium.

A bond should trade at par when the coupon rate is less than Ellas required return.

When the coupon rate is less than Ellas required return, the bond should trade at a discount.