Hi all,
I'm in need of a help with the present value calculation. Can you explain me solving the below problems in the simplest way? Thanks in advance for your time and help.
1. Discounted bonds
An entity issues 200, 6% , 5 year, $5000 bonds when prevailing interest rate in the market is 8%. The total face amount of bonds issued is therefore $1,000,000 ($5,000 face amount x 200 bonds). Annual cash interest payments of $60,000 ($1,000,000 face amount x 6% stated rate) will be made at the end of each year. The present value of the cash flows associated with this bond issue, discounted at the market rate of 8% would be: ---??
2. Premium bonds
An entity issues 200, 8% , 5 year, $5000 bonds when prevailing interest rate in the market is 6%. The total face amount of bonds issued is therefore $1,000,000 ($5,000 face amount x 200 bonds). Annual cash interest payments of $80,000 ($1,000,000 face amount x 8% stated rate) will be made at the end of each year. The present value of the cash flows associated with this bond issue, discounted at the market rate of 6% would be: ---??
I'm in need of a help with the present value calculation. Can you explain me solving the below problems in the simplest way? Thanks in advance for your time and help.
1. Discounted bonds
An entity issues 200, 6% , 5 year, $5000 bonds when prevailing interest rate in the market is 8%. The total face amount of bonds issued is therefore $1,000,000 ($5,000 face amount x 200 bonds). Annual cash interest payments of $60,000 ($1,000,000 face amount x 6% stated rate) will be made at the end of each year. The present value of the cash flows associated with this bond issue, discounted at the market rate of 8% would be: ---??
2. Premium bonds
An entity issues 200, 8% , 5 year, $5000 bonds when prevailing interest rate in the market is 6%. The total face amount of bonds issued is therefore $1,000,000 ($5,000 face amount x 200 bonds). Annual cash interest payments of $80,000 ($1,000,000 face amount x 8% stated rate) will be made at the end of each year. The present value of the cash flows associated with this bond issue, discounted at the market rate of 6% would be: ---??