Lance Whittingham IV specializes in buying deep discount bonds. These represent bonds that are trading at well below par value.
He has his eye on a bond issued by the Leisure Time Corporation. The $1,000 par value bond pays 6 percent annual interest and has 15 years remaining to maturity. The current yield to maturity on similar bonds is 14 percent. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. a. What is the current price of the bonds?
1 answer:
Answer:
$508.63
Explanation:
For this question, we use the Present value formula that is reflected in the attached spreadsheet. Kindly find it below:
Provided that
Given that,
Future value = $1,000
Rate of interest = 14%
NPER = 15 years
PMT = $1,000 × 6% = $60
The formula is shown below:
= -PV(Rate;NPER;PMT;FV;type)
So, after solving this, the present value is $508.63
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Answer:
salvage value is $16,368.34
Explanation:
given data
initial cost = $182,730
annualized capital cost = $42,442
service life = 7 year
interest rate = 15%
solution
we get here first present value that is
annual value = rate × .................1
put here value and we get
42,442 = 15% ×
solve it we get
present value = $176,576.5343
so
present value = initial investment + salvage value ..............2
we take here present value and initial investment will be negative
-176,576.5343 = -182,730 + salvage value(p/f,15%,7)
-176,576.5343 +182,730 = salvage value(p/f,15%,7)
6,153.465 = salvage value × 0.3759
salvage value = 16,368.34