Answer: Option (d) is correct.
Explanation:
Given that,
Face value = $1,000
Maturity = 1 year remaining
coupon rate = 3% ⇒ Coupon payment = 3% of 1000 = 30
New bonds paying (i) = 14% = 0.14
Payment will be received after one year = face value + coupon payment
= 1000 + 30
= 1030
Therefore,
Present value =
= 903.50 ⇒ the most you can get for your old bond.
<span>The answer to this question is False. A preferred shares have qualities of both a stock and a bond. While the owner of the share is part of owner of the company, their payment is in the form of a dividend. The payments could come monthly, quarterly, or yearly depending on the company's stated policy.</span>
Answer:
The amount the company should be willing to spend now is $169,005.10.
Explanation:
This can be calculated using the formula for calculating the present value of an ordinary annuity as follows:
PV = P * ((1 - (1 / (1 + r))^n) / r) …………………………………. (1)
Where;
PV = Present value or the amount the company should be willing to spend now =?
P = Annual insurance claim = $100,000
r = Interest rate = 12%, or 0.12
n = number of years = 2
Substitute the values into equation (1) to have:
PV = $100,000 * ((1 - (1 / (1 + 0.12))^2) / 0.12)
PV = $100,000 * 1.69005102040816
PV = $169,005.10
Therefore, the amount the company should be willing to spend now is $169,005.10.