Caldwell, Inc. sold an issue of 30-year, $1,000 par value bonds to the public. The bonds carry a 10.85% coupon rate and pay inte
rest semiannually. It is now 12 years later. The current market rate of interest on the Caldwell bonds is 8.45%.
What is the current market price of the bonds? (Round to the nearest dollar.)
The answer is 1220. How to use calculator to get this answer?
What is the current market price of the bonds? (Round to the nearest dollar.)
The answer is 1220. How to use calculator to get this answer?
1 answer:
Answer:
$1,220
Explanation:
In this question, we use the present value formula which is shown in the spreadsheet.
The NPER represents the time period.
Given that,
Future value = $1,000
Rate of interest = 8.45% ÷ 2 = 4.225%
NPER = 30 years - 12 years = 18 year × 2 = 36 years
PMT = $1,000 × 10.85% ÷ 2 = $54.25
The formula is shown below:
= -PV(Rate,NPER,PMT,FV,type)
So, after solving this, the answer would be $1,220
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Answer: Machine B because it has the lower Present Value
Explanation:
<h2>Machine A</h2>= Present Value of income - Present Value of Costs
Present value of Income;
Sold for $5,000 after 10 years.
= 5,000/ (1 + 8%)^10
= $2,315.97
Present Value of Costs;
Purchased for $48,000.
Maintenance of $1,000 per year for years.
Present value of maintenance= 1,000 * Present value factor of annuity, 10 years, 8%
= 1,000 * 6.7101
= $6,710.10
Machine A Present Value
= 2,315.97 - 6,710.10 - 48,000
= -$52,394
<h2>Machine B</h2>No salvage value.
Present Value of costs
Purchased for $40,000.
Present value of maintenance = (4,000 / (1 + 8%)^3) + (5,000 / ( 1 + 8)^6) + (6,000 / ( 1 + 8%)^8)
= -$9,567.79
Present Value = -40,000 - 9,567.79
= -$49,568
