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Intrinsic value of a bond means fair value or economic

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A) Intrinsic value of a bond means fair value or economic value of a bond. For instance, two bonds are of a same risk and same coupon rate of 10 percent, required rate of return of 12 percent and same par value of $1000 but only differs in term of maturity period. If due to any reason the required rate of return increases, which bond will show the greatest price change? and Why? Support your answer with calculations.

B) The stock of a company is just sold for $60/share and the dividends just paid are $5/ share. If the dividends are expected to grow at a 10 percent interest rate for first three years and 8 percent thereafter. If the required of rate return is 12 percent, then

i. What is the intrinsic value of this stock? Further, identify stock is undervalued or overvalued.

ii. If the investor seeks your opinion in making investment in this stock. What would be your answer?

Reference no: EM132608882

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