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Multiple Choice Questions

Company issued 10 1000 Bonds issued at 990 redeemed after 5 years at 1050 calculate it rsquo s prese...........

Finance (Phase -I & II) Others

Company issued 10%, 1000/- Bonds issued at 990/- redeemed after 5 years at 1050/-, calculate it’s present value if discounting rate applicable is 15%.

880.25

840.85

850.50

856.85

820.85

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Explanation:

PV= 100 + 100 + 100 + 100 + 100 + 1050

(1+r)1 (1+r)2 (1+r)3 (1+r)4 (1+r)5

100 100 100 100 1150

----- + -------- + ------- + ------- + ------

(1.15)1 (1.15)2 (1.15)3 (1.15)4 (1.15)5

= 86.90 + 75.60 + 57.10 + 571.55

= 856.85

So, it is not worth for an investor to invest in such bonds as these are issued at price more than present value.

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Company issued 10 1000 Bonds issued at 990 redeemed after 5 years at 1050 calculate it rsquo s prese...........

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