Homework Answers
| We would first calculate the present value of future payment | ||||||
| Present value | Future value*(1/(1+r^n) | |||||
| Calculation of present value of two payments to customers | ||||||
| Present value of $7 million | 7000000*(1/(1.08^1)) | |||||
| Present value of $7 million | 7000000*0.925926 | |||||
| Present value of $7 million | $6,481,481.48 | |||||
| Present value of $3 million | 4000000*(1/(1.08^3)) | |||||
| Present value of $3 million | 4000000*0.793832 | |||||
| Present value of $3 million | $3,175,328.96 | |||||
| Calculation of maturity of zero coupon bond | ||||||
| Year | Present value | Year*present value | ||||
| 1 | $6,481,481.48 | $6,481,481.48 | ||||
| 3 | $3,175,328.96 | $9,525,986.89 | ||||
| Total | $9,656,810.45 | $16,007,468.37 | ||||
| Maturity | 16007468.37/9656810.45 | |||||
| Maturity | 1.6576 | years | ||||
| Calculation of face value of bond | ||||||
| Face value | Present value*((1+r)^n) | |||||
| Face value | 9656810.45*(1.08^1.6576) | |||||
| Face value | 9656810.45*1.136065 | |||||
| Face value | $10.97 | million | ||||
| Market value would be same as present value calculated above | ||||||
| Market value | $9.66 | million | ||||
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