A $100,000 dollar face value bond pays 4% interest annually for the next 30 years. The...
A $100,000 dollar face value bond pays 4% interest annually for the next 30 years. The market rate is also 4%,If the bond is strippedWhat will the lump sum and Annuity Sell for?
Homework Answers
Since the interest rate on bond and market rate are same, the bond will sell at par value i.e. $100,000
Value of lump sum = Face Value*Present value factor
= 100,000*PVF(4%, 30 years)
= 100,000*0.308319
= $30,831.9
Hence, value of lump sum = $30,831.9
Value of Annuity = 100,000 - 30,831.9 = $69,168.1
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