What is the present value of the following cash flow stream at a rate of 9.00%?...

Question

Question

What is the present value of the following cash flow stream at a rate of 9.00%? Years: 0 3 4 1 2 $75 $225 CFs: $0 $0 $300 Sel

Answer 1

Answer #1

Present value of call flows = 0 + 75/(1.09) + 225/(1.09)² + 0 + 300/(1.09)⁴

= $470.71

i.e. e is the answer

Since the yield to maturity is lower than the coupon rate, the bond will trade at a premium

And the price of bond will reduce each year to reach par value on maturity

Hence, the answer is c.

Answer 2

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