Question

A bond has a Face Value of $1,000 with a yearly coupon of $80 and maturity of 10 years. If Yield is 8%, what is the Price? You invest $10,000 at time zero in a project with expected Cash flows of $4,000 per year for the next 4 years. Compute NPV and IRR

Answer 1

Solution 1:

Yearly coupon rate = $80 / $1000 = 8%

As coupon rate and yield are same, therefore price of bond = Face value = $1,000

Solution 2:

Computation of NPV
Particulars	Period	Amount	PV factor at 8%	Present Value
Cash outflows:
Initial investment	0	$10,000.00	1	$10,000
Present Value of Cash outflows (A)				$10,000
Cash Inflows
Annual cash inflows	1-4	$4,000.00	3.31213	$13,249
Present Value of Cash Inflows (B)				$13,249
Net Present Value (NPV) (B-A)				$3,249

Computation of IRR
Period	Cash Flows	IRR
0	-$10,000.00	21.86%
1	$4,000.00
2	$4,000.00
3	$4,000.00
4	$4,000.00

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