Vernon runs Buzz, his own event management company, which frequently organizes large corporate events. He has built a good reput
1 answer:
You might be interested in
If the company requires a return of 10 percent for such an investment, calculate the present value of the project.
The present value of the project is $72349.51.
Since we consider only incremental cash flows for a project, we consider $21,600 for year one and calculate a 4% increase for each of the additional years.
We then calculate the Present Value Interest Factor (PVIF) at 10% for four years using the formula :
PVIF = 1 / [(1+r)^n]
Next, we find the product of the respective cash flows and PVIF for each year.
Finally, we find the total of the discounted cash flows for the four years to find the Present Value of the project.
Answer: -18.80% for bond J, -15.46% for bond K
Explanation:
If interest rates suddenly rise by 2 percent, the percentage price change of bond J is -18.80% while the percentage price change of bond K is -15.46%
The calculation is provided below
