Question

Neumann Corporation is planning to issues bonds with a face amount of $2 million. If Neumann's accountant, Betty, wants to calculate the expected issue she should calculate the ____ of the related future cash payments using the ____ interest rate.

Answer 1

Answer:

Present value; market Interest rate

Explanation:

Betty should calculate the present value of related future cash payments using the market interest rate in order to determine the expected issue.

Present value (PV): This refers to the current value of a future sum of money at a constant rate of return.

It can calculated by;

PV= FV/(1+r)^n

Where,

PV=present value

FV=future value

r=rate of return

n=number of periods

Present value states that a specific amount of money today is worth more than that same amount in the future.

Market interest rate: This is the rate of interest paid in the bond market on bonds. It is the rate of interest paid on investment which is usually determined by the interaction of the forces of demand and supply in the money market. It can also be called effective interest rate.

Answer 2

Answer:

1. Present value

2. Market

Explanation:

Neumann Corporation is planning to issues bonds with a face amount of $2 million. If Neumann's accountant, Betty, wants to calculate the expected issue she should calculate the present value of the related future cash payments using the market interest rate.