Homework Answers
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| Correct Option is: D. $51,176 | ||||
| Workings: | ||||
| Cash flow | Period | Amount | P.V Factor @6% | Present Value |
| Maturity value | 20 | $ 78,000 | 0.312 | $ 24,336 |
| Interest (annuity) | 1 to 20 | $ 2,340 | 11.470 | $ 26,840 |
| Total proceeds | $ 51,176 | |||
| Working notes:- | ||||
| Interest is payable semiannually i.e twice a year | ||||
| Semiannual coupon rate | = | Coupon rate / 2 | ||
| = | 6% / 2 | |||
| = | 3.00% | |||
| Number of semiannual periods | = | Number of years X 2 | ||
| = | 10 years X 2 | |||
| = | 20 years | |||
| Interest payment | = | $78000 X 3% | ||
| = | $ 2,340 | |||
| Semiannual market interest rate | = | 12% / 2 | ||
| = | 6.0% | |||
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