For example, assume Oliver wants to earn a return of $10\mathrm{.}50\%$ and is offered the opportunity to purchase a $$1,000$ par value bond that pays a $8\mathrm{.}75\%$ coupon rate $($distributed semiannually$)$ with three years remaining to maturity. The following formula can be used to compute the bond's intrinsic value:

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

Unknown Variable Name

A

B

C

Bond's semianuual coupon payment

Bond's par value

Semiannual required return

Variable Value

$$43\mathrm{.}75$

$$1,000$

$5\mathrm{.}2500\%$

Based on this equation and the data, it is reasonable to expect that Oliver's potential bond investment is currently exhibiting an intrinsic value less than $$1,000.$

Now, consider the situation in which Oliver wants to earn a return of $6\mathrm{.}75\%,$ but the bond being considered for purchase offers a coupon rate of $8\mathrm{.}75\%.$ 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 is its par value, so that the bond is $($round to the nearest whole dollar$)$ is