Final answer:
To calculate the intrinsic value of bonds and stocks, we use present discounted value. By comparing the intrinsic value to the market price, we can determine if they are overvalued or undervalued. In this case, the correct answer is D. $940.00, $58.00, Undervalued.
Step-by-step explanation:
To calculate the intrinsic value of a bond, we use the concept of present discounted value. This involves calculating the present value of future cash flows from the bond, including interest payments and the face value. The present value is obtained by discounting the future cash flows using an appropriate interest rate.
To calculate the intrinsic value of a stock, we use the present discounted value of expected future profits. The present value is obtained by discounting the future profits using an appropriate interest rate.
To determine whether bonds and stocks are overvalued or undervalued, we compare their intrinsic value to their market price. If the intrinsic value is higher than the market price, they are undervalued. If the intrinsic value is lower than the market price, they are overvalued. Proper calculation and reasoning are needed to make this determination.
Based on the given options, the correct answer is D. $940.00, $58.00, Undervalued. This means that the intrinsic value of the bond is $940.00 and the intrinsic value of the stock is $58.00. Both the bond and the stock are undervalued because their intrinsic values are higher than the market prices.