For example, assume Ethan wants to earn a return of 15.75% and is offered the opportunity to purchase a $1,000 par value bond that pays a 18.00% 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 = dfc3 + d^cs + dcs + 146 + 1 405 + fog + a to Complete the following table by identifying the appropriate corresponding variables used in the equation. Unknown Variable Name Variable Value $1,000 Semiannual required return to expect that Ethan's potential bond investment is currently exhibiting an intrinsic Based on this equation and the data, it is value less than $1,000. Now, consider the situation in which Ethan wants to earn a return of 16.00%, but the bond being considered for purchase offers a coupon rate of 18.00%. 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 is 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 Ethan's required return. When the coupon rate is greater than Ethan's required return, the bond's intrinsic value will be less than its par value. When the coupon rate is greater than Ethan's required return, the bond should trade at a premium. When the coupon rate is greater than Ethan's required return, the bond should trade at a discount. Coupon payments are fixed, but the percentage return that investors receive varies based on market conditions. This percentage return is referred to as the bond's yield. Yield to maturity (YTM) is the rate of return expected from a bond held until its maturity date. However, the YTM equals the expected rate of return under certain assumptions. Which of the following is one of those assumptions? O The bond has an early redemption feature. The bond will not be called. Consider the case of RTE Inc.: RTE Inc. has 9% annual coupon bonds that are callable and have 18 years left until maturity. The bonds have a par value of $1,000, and their current market price is $1,220.35. However, RTE Inc. may call the bonds in eight years at a call price of $1,060. What are the YTM and the yield to call (YTC) on RTE Inc.'s bonds? Value YTM YTC If interest rates are expected to remain constant, what is the best estimate of the remaining life left for RTE Inc.'s bonds? 5 years 13 years 18 years 8 years If RTE Inc. issued new bonds today, what coupon rate must the bonds have to be issued at par