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Calculator 82545 Use the following tables to calculate the present value of a $121,000 o 5%, 6-year bond that pays $6,050 int
Use the following tables to calculate the present value of a $25,000,7%, five-year bond that pays $1,750 ($25,000 x 7) intere
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Answer #1

Part 1.

Present Value of $ 121000 @ 5 % 6 year bond that pays $ 6050 interest annually, If market rate of interest is 6 %

Value of bond = Present value of future cash flows that the bond can generate in its life time.

Year                       Cash flow            Discount/Annuity factor @ 6%                   Present value (Column 2* 3)

1-6                          6050                       4.91732 29749.786

6                              121000                  .70496                                                                   85300.16

TOTAL                                                                                                                                   115050.02

So the present value rounded off to = $ 115050

Part 2

Present value of $ 25000 , 7 % 5 year bond that pays 1750 interest annually if the market rate is 7%

Year                       Cash flow            Discount/Annuity factor @ 7%                   Present value (Column 2* 3)

1-5                          1750                       4.10020 7175.35

5                              25000                    .71299                                                                   17824.75

TOTAL                                                                                                                                   25000.10

Present value = $ 25000

Ie : If the required rate of return (here market rate) and actual rate of return are same, then present value will be equal to the price of bond right now

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