Problem:
Suppose that Firm Y has bonds outstanding that mature in 12 years and offer a 6.5% annual coupon rate, paid semiannually. Market required returns on similar bonds are 6.25% annually. For parts a. through c., use an algebraic solution to the problem, not a financial calculator and calculate and show the value of the present value factor for both the interest payment component and the return of principal component of the bond's value.
Required:
Question 1: What is the interest payment component of this bond's intrinsic value?
Question 2: What is the return of principal component of this bond's intrinsic value?
Question 3: What is the total intrinsic value of the bond?
Note: Explain all steps comprehensively.