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  • PV CF R: Bond A

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    Muhammad Waseem
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    This document calculates the present values of three bonds (A, B, C) with different face values, interest rates, and terms. Bond B has the lowest present value of $266,153.84 compared to $295,179.45 for Bond A and $298,542.72 for Bond C, making it the best investment option. Bond B's longer term of 6 years provides an additional cash flow, contributing to its lower present value.

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    PV1

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    This document calculates the present values of three bonds (A, B, C) with different face values, interest rates, and terms. Bond B has the lowest present value of $266,153.84 compared to $295,179.45 for Bond A and $298,542.72 for Bond C, making it the best investment option. Bond B's longer term of 6 years provides an additional cash flow, contributing to its lower present value.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
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    6 views2 pages

    PV CF R: Bond A

    Uploaded by

    Muhammad Waseem
    This document calculates the present values of three bonds (A, B, C) with different face values, interest rates, and terms. Bond B has the lowest present value of $266,153.84 compared to $295,179.45 for Bond A and $298,542.72 for Bond C, making it the best investment option. Bond B's longer term of 6 years provides an additional cash flow, contributing to its lower present value.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    of 2

    Part A

    CF
    PV = ¿ ) + FV / (1+r)n
    r

    CF = Cash flow
    N = no of period
    R = rate of interest

    Bond A
    Face Value = 330,000
    Annual Rate = r = 13 % CF = 330,000 x 0.10 = 33,000
    N=5
    CF
    PV = ¿ ) + FV / (1+r)n
    r

    PV = 33000 / 0.13 [ 1 – 1 / (1+0.13)5 ] + 33000 / (1+0.13)5


    PV = 116068.67 + 179110.8 = 295179.45

    Bond B
    Face Value = 290,000
    Annual Rate = r = 12 % CF = 290,000 x 0.10 = 29,000
    N=6
    CF
    PV = ¿ ) + FV / (1+r)n
    r

    PV = 29000 / 0.12 [ 1 – 1 / (1+0.12)6 ] + 29000 / (1+0.12)6


    PV = 119230.812 + 146923.00 = 266153.84

    Bond C
    Face Value = 310,000
    Annual Rate = r = 11 % CF = 310,000 x 0.10 = 31,000
    N=5
    CF
    PV = ¿ ) + FV / (1+r)n
    r

    PV = 31000 / 0.11 [ 1 – 1 / (1+0.11)5 ] + 31000 / (1+0.11)5


    PV = 114572.8 + 183969.9 = 298542.72

    Part B
    Bond B is the best option for investing

    Part C
    1. The bond B present value is lowest current price instead of other two.
    2. 6 year is greater than of others as one extra cash flow

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