Which method of bond amortization amortizes the premiums/discounts accurately and is considered a conceptually superior method
1 answer:
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Answer:
Net present value = $506.80
Explanation:
Provided details are
Cash outflow at present = $13,400
Present value will be same as is incurred today.
Cash inflow = $5,400 for 3 years and $2,400 in 4th year
Rate of required return = 14.2%
Present value factor for 3 years cumulative = 2.314
Present value factor for 4th year = 0.588
Present value of cash inflow = $5,400 2.314 + $2.400
0.588
= $12,495.60 + $1,411.2 = $13,906.80
Thus, net present value = Present value of cash inflow - Present value of cash outflow
= $13,906.80 - $13,400 = $506.80