Homework Sourseuse the following tables to caculate the present vaule of a
use the following tables to caculate the present vaule of a 587000 at 5% 5 year bond that pays 29350 intrest annually if the market rate of interest is 10% round to the nearest dollar
?CengageNOW2] Online teach >Solution
Present value of bond = face value * PVF(10%,5 year) + interest * PVAF(10%,5 years)
=$587000 * 0.62092 + ($587000*5%) * 3.79079
=$587000 * 0.62092 + 29350 * 3.79079
=364480.04 + 111259.69
= $475740
OR
Present value of bond = present value of face value of bond + present value of interest payment
= face value / (1+market interest)number of period + interest(1-(1+market interest)-number of period)] / market interest
= $587000 / (1+0.10)5 + ($587000*5%)[(1-(1+0.10)-5)] / 0.10
= $587000 / (1.10)5 + 29350 [(1-(1.10)-5)] / 0.10
= $587000 / (1.10)5 + 29350 [(1- 1/(1.10)5)] / 0.10
= $587000 / 1.61051 + 29350 [(1- 1/1.61051] / 0.10
= 364480.82 + 111259.59
= $475740
