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Studentka2010 [4]
2 years ago
12

If the appropriate discount rate for this bond is 6%, what would you be willing to pay for ABC’s bond?

Business
1 answer:
Juliette [100K]2 years ago
6 0

Question:

Suppose there is a bond in ABC Company that that pays coupons of 8.5%, and suppose that these coupons are paid annually.

Suppose the face value of the ABC bond is $1000 and the maturity is 11 years.

If the appropriate discount rate for this bond is 6%, what would you be willing to pay for ABC’s bond?

Answer:

Price of bond = $ 1197.17

Explanation:

<em>The value of the bond is the present value(PV) of the future cash receipts expected from the bond. The value is equal to present values of interest payment plus the redemption value (RV)</em>.  

Value of Bond = PV of interest + PV of RV  

The price of the bond can be worked out as follows:  

S<em>tep 1  </em>

<em>PV of interest payments </em>

Annual Interest payment =  8.5%× 1000 = 85

Annual yield = 6%

Total period to maturity (in years) = 11  

PV of interest =  

85 × (1- (1+0.06)^(-11)/)/0.06 = 670.38

<em />

<em>Step 2  </em>

<em>PV of Redemption Value </em>

= 1,000 × (1.06)^(-11) = 526.78

<em>Step 3:</em>

<em>Price of bond  </em>

670.38 + 526.78= 1,197.17

Price of bond = $ 1197.17

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Answer:

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The future value formula is given below:

=-fv(rate,nper,pmt,-pv)

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1. c. a consolidation

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1 year ago
Aragon and Associates has found from past experience that 25% of its services are for cash. The remaining 75% are on credit. An
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Answer:

<u>schedule of cash receipts</u>

                                    May         June       July        August   September

                                      $                $           $               $                 $

Credit Fees (75%)    135,000  150,000  142,500    145,500  180,000

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Credit Receipt (60%)      0        81,000    90,000     85,500    87,300

Credit Receipt (26%)      0            0          35,100      39,000    37,050

Total Receipts           58,500  136,000  186,850    187,550   202,350

Explanation:

The schedule of cash receipts must include the cash sales and other amounts received for credit sales <u>in the respective months and amounts</u> as outlined by the question.

 

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