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# Estimating the fair value of a bond

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BioMax Inc. offers an 8 percent coupon bond that has a \$1,000 par value, semiannual coupon payments and 20 years of its original 25 years left to maturity. Which of the following statements is true if the market return on similar bonds is 10%?

a. The bond will sell at a premium of \$1,198 because the coupon rate is greater than the market interest rate.
b. The bond will sell at a discount of \$828 because the coupon rate is greater than the market interest rate.
c. The bond will sell at a premium of \$1,198 because the coupon rate is less than market interest rate.
d. The bond will sell at a discount of \$828 because the coupon rate is less than the market interest rate.

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See attached Excel file for solution.

Face Value=FV=\$1,000
Coupon ...

#### Solution Summary

Solution provides the calculations to estimate the current value of a bond in MS Excel format.

\$2.19