The bond will pay you $100 at the end of each year for three years. At the end of the third year, the bond will also pay you back its $1,000 face value. Assuming a 10% discount rate, how much is this bond worth today? Round to the nearest dollar.

The bond will pay you $100 at the end of each year for three years. At the end of the third year, the bond will also pay you back its $1,000 face value. Assuming a 10% discount rate, how much is this bond worth today? Round to the nearest dollar.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter5: The Time Value Of Money

Section: Chapter Questions

Problem 17P

See similar textbooks

Related questions

Q: By the end of this year you would be 35 years old and you want to plan for your retirement. You wish…

A: We’ll answer the first question since the exact one wasn’t specified. Please submit a new question…

Q: You are considering a savings bond that will pay $100 in 10 years. If the interest rate is 2%, what…

A: Future value =$100 Interest = 2% Time =10 years So, Present value = Future value/(1+ interest)^time…

Q: Suppose you think if you were to retire right now you would have needed $50,000 each year to…

A: a. Computation of Amount equivalent to $50000 at the retirement time when adjusted for inflation…

Q: You are considering purchasing a bond. The bond will pay you $100 at the end of each year for 20…

A: Time value of money: Time value of money is a vital concept to the investors, as it suggests them…

Q: You are thinking about buying a savings bond. The bond costs $70 today and will mature in 10 years…

A: Bond cost = $ 70 Period = 10 Years Maturity value = $ 155

Q: the owners choose to invest in bonds instead, they look at a $57,750.00 bond set to mature in 6…

A: Price of bond is the present value of coupon payment plus present value of the par value of the bond…

Q: You are planning to save for retirement over the next 25 years. To do this, you will invest $850 per…

A: Return is the money made on an investment over a period of time.

Q: You own a 5-year bond that has a face value of $1000 and pays 10% interest each year. Two years…

A: Face value (FV) = $1000 Coupon rate = 10% Annual coupon amount (C) = Face value*Coupon rate =…

Q: You are thinking about buying a savings bond. The bond costs $42 today and will mature in 13 years…

A: Principal amount invested now will become certain amount after certain period of time at specific…

Q: You have decided to buy a perpetuity. The bond makes one payment at the end of every year forever…

A: Perpetual bond are those bond which doesn't have definite term like other bonds and it depends on…

Q: Your good friend is looking to buy a bond that pays semi-annual interest. The par value is $1,000…

A: Computation of bond price:Hence, the recommended bond price will be $1,085.84.

Q: You are planning to save for retirement over the next 35 years. To do this, you will invest $770 per…

A: Amount in stock account after 35 years: Monthly deposits=$770 Number of years=35 Rate of…

Q: You are planning to save for retirement over the next 30 years. To do this, you will invest $750 per…

A: A study that proves that the future worth of the money is lower than its current value due to…

Q: A savvy investor paid $5,000 for a 20-year $10,000 mortgage bond that had a bond interest rate of 2%…

A: Given: Particulars Amount Invested $5,000 Year 20 Mortgage $10,000 Interest rate…

Q: Imagine that a $10,000 ten-year bond was issued at an interest rate of 6%. You are thinking about…

A: Using excel PV function to calculate the amount you will be willing to pay for this bond.

Q: You are considering purchasing a 30-year bond for $1500. If the coupon rate is 5.7% APR paid…

A: A bond is an instrument that represents the loan that is made by the investor to the company and…

Q: You have decided to buy a perpetual bond. The bond makes one payment at the end of every year…

A: Given: Interest rate = 9% Initial cost = $3,000

Q: You want to buy a 10-year bond with a maturity value of $2,000, and you wish to get a return of 5.5%…

A: Present value is the value of money today is worth more than that same amount in the future. It is…

Q: You are planning to save for retirement over the next 30 years. To save for retirement, you will…

A: Given, we are caluclating stock and bond balance after 25 years by using excel

Q: A.) You bought a bond five years ago for $935 per bond. The bond is now selling for $980. It also…

A: Rate of return earned is the annual return on investment realized.

Q: Lisa's new firm plans to issue a permanent callable bond with a par value of $1,000 and a nominal…

A: Permanent Callable Bonds are Bonds that can be purchased by the seller at any time after selling the…

Q: You have decided to buy a perpetual bond. The bond makes one payment at the end of every year…

A: To calculate the payment at the end of each we will use below formula Annual payment = PV*r Where…

Q: 1. If the bond rate is 2%, will the bond be sold at a premium or a discount? Explain your answer.

A: Bond valuation refers to a method which is used to compute the current value or present value (PV)…

Q: You are planning to save for retirement over the next 25 years. To do this, you will invest $7,000 a…

A: The future value of an annuity is the future worth of a cash flow series at a particular time period…

Q: You are planning to save for retirement over the next 30 years. To do this, you will invest $700 a…

A: Using excel FV and PMT function

Q: A savvy investor paid $5,000 for a 20-year $10,000 mortgage bond that had a bond interest rate of 2%…

A: Rate of return on a bond is the rate which denotes the total return which an investor will get from…

Q: By the end of this year you would be 35 years old and you want to plan for your retirement. You wish…

A: Retirement account interest = 7% Period of retirement account = 30 years Annual coupon = 6% Annuity…

Q: Five years ago you paid $10,000 for five, 10-year $2,000 bonds to help finance Engineer Paul's worm…

A: A bond is a financial debt security that is sold by governments or large business entities to borrow…

Q: You buy a bond that pays annual interest payments of 7% of the bond’s face value of $1000. You…

A: Rate of return is the percentage of profit earned from an investment. Given: Face value of bond is…

Q: Suppose you purchase a $5,000 bond that pays 7% interest annually and matures in five years. If the…

A: The investor is estimating the real rate of return on the securities. This will be calculating by…

Q: If the owners choose to invest in bonds instead, they look at a $136,125.00 bond set to mature in 9…

A: Par value of bond (FV) = $136125.00 Coupon rate = 2% Semi annual coupon amount (C) = Par…

Q: You are planning to save for retirement over the next 30 years. To do this, you will invest K700 a…

A: Time Period 30 Stock Return 10% Bond Return 6% Amount In Stock K 700.00 Amount In…

Q: An engineer planning for retirement is considering purchasing a savings bond with a face value of…

A: An investor purchases an asset if the current value of asset is more than the purchase price.…

Q: You are considering investing in a bond that matures 20 years from now (the par value of the bond is…

A: A bond is a financial security that generates periodic coupon payments at a predetermined rate on…

Q: You are planning to save for retirement over the next 25 years. To do this, you will invest $760 per…

A: Savings Time Period = 25 years or 300 months Investment in stock per month = 760 Investment in bond…

Q: You are considering a savings bond that will pay $100 in 8 years. If the interest rate is 1.9%, what…

A: Time value of money is defined as the return which is earned by an investor on making the…

Q: You have some money to invest and you are considering purchasing unsecured notes which are a…

A: Face value =$1000 Time =5 years Semi annual period = 5*2 =10 Coupon rate = 10.75% paid annually…

Q: I am not quite sure how to structure this question attached. I think that I start by calculating the…

A: FV of an annuity can be calculted by excel formula FV. The inputs of this function are:Rate =…

Q: By the end of this year you would be 35 years old and you want to plan for your retirement. You wish…

A: Annuity is the number of payments of an equal amount and is made at an equal interval of time. At…

Q: By the end of this year you would be 35 years old and you want to plan for your retirement. You wish…

A: Retirement account is the account in which deposits are made by the individual during the years of…

Q: suppose you own a 40-year bond that has a bond rate of 2% per year. 1. How much money will you lose…

A: Bond is a debt security that is issued by organizations to raise debt funds from public and…

Q: You are considering purchasing a 15-year bond for $2400. If the coupon rate is 5.6% APR paid…

A: Total interest during the life of bonds = Principal value * Interest rate * Years

Q: A bond costs $925, with a face value of $1000 and pays 4% of the face value each year. If the bond…

A: Bond cost (PV) = $ 925 Face value (FV) = $ 1000 Coupon rate = 4% Coupon amount (C) = 1000*0.04 = $…

Q: You will receive $100 from a savings bond in 2 years. The nominal interest rate is 8.40%. a.…

A: Hello. Since your question has multiple sub-parts, we will solve first three sub-parts for you. If…

Q: You will receive $100 from a savings bond in 4 years. The nominal interest rate is 8.50%. a.…

A: a) Present value of the proceeds of $100 from the bond can be calculated using the below formula:…

Concept explainers

Capital Gain

Any capital asset when sold can give the seller a higher or lower price from its purchase price leading to a capital gain or capital loss. The time period of holding an asset is decided based on if it is a long term or short-term capital gain. On that basis, the rate of taxation is decided if it is 20%, 15% or according to the tax brackets. The rate of taxation differs in the case of equity or debt, whether long or short term. The capital gain can be adjusted from capital loss to arrive at a net capital gain. The amount of gains and the exemption has to be reported in the tax return filed in the financial year in which the asset was transferred. The tax return can be filed quarterly, monthly, semi-annually or annually.

Question

You are considering purchasing a bond. The bond will pay you $100 at the end of each year for three years. At the end of the third year, the bond will also pay you back its $1,000 face value. Assuming a 10% discount rate, how much is this bond worth today? Round to the nearest dollar.

I am having trouble calculating how much this bond is worth today. Thank you!

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1 Meaning and Formula

VIEW

Step 2 Calculations

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions

You want to invest $8,000 at an annual Interest rate of 8% that compounds annually for 12 years. Which table will help you determine the value of your account at the end of 12 years? A. future value of one dollar ($1) B. present value of one dollar ($1) C. future value of an ordinary annuity D. present value of an ordinary annuity
Use the tables in Appendix B to answer the following questions. A. If you would like to accumulate $4,200 over the next 6 years when the interest rate is 8%, how much do you need to deposit in the account? B. If you place $8,700 in a savings account, how much will you have at the end of 12 years with an interest rate of 8%? C. You invest $2,000 per year, at the end of the year, for 20 years at 10% interest. How much will you have at the end of 20 years? D. You win the lottery and can either receive $500,000 as a lump sum or $60,000 per year for 20 years. Assuming you can earn 3% interest, which do you recommend and why?
Use the tables in Appendix B to answer the following questions. A. If you would like to accumulate $2,500 over the next 4 years when the interest rate is 15%, how much do you need to deposit in the account? B. If you place $6,200 in a savings account, how much will you have at the end of 7 years with a 12% interest rate? C. You invest $8,000 per year for 10 years at 12% interest, how much will you have at the end of 10 years? D. You win the lottery and can either receive $750,000 as a lump sum or $50,000 per year for 20 years. Assuming you can earn 8% interest, which do you recommend and why?
You are considering purchasing a bond. The bond will pay you $100 at the end of each year for 20 years. At the end of the 20th year, the bond will also pay you back its $1,000 face value. Assuming a 4% discount rate, how much is this bond worth today? Round to the nearest dollar.
You purchased a bond at a price of $800. In 15 years when the bond matures, the bond will be worth $5,000. It is exactly 8 years after you purchased the bond and you can sell the bond today for $3,300. If you hold the bond until it matures, what annual rate of return will you earn from today?
You have decided to buy a perpetuity. The bond makes one payment at the end of every year forever and has an interest rate of 5%. If you initially put $3,000 into the bond, what is the coupon payment every year? (Round to the nearest dollar.)
You have an opportunity to purchase a bond that will pay out $815 in 10 months. If you would like to earn at least a 2.2% annual rate of simple interest on your investment, what is the largest amount the you should pay for the bond? Round your answer to the nearest cent.
You want to buy a 9 year bond with a maturity value of $3,000, and you wish to get a return of 5.5% annually. How much (in dollars) will you pay? (Round your answer to the nearest cent.)
You will receive $60 interest every six months from your investment in a corporate bond. The bond will mature in five years from now and it has a face value of $2,000. This means that if you hold the bond until its maturity, you will continue to receive $150 interest semiannually and $2,000 face value at the end of five years.(a) What is the present value of the bond in the absence of inflation if the market interest rate is 9% '?(b) What would happen to the value of the bond if the inflation rate over thenext five years is expected to be 4%?
A.) You bought a bond five years ago for $935 per bond. The bond is now selling for $980. It also paid $75 in interest per year, which you reinvested in the bond. Calculate the realized rate of return earned on this bond. B.) Refer again to the bond information in Problem 1. You expect to hold the bond for three more years, then sell it for $990. If the bond is expected to continue paying $75 per year over the next three years, what is the expected rate of return on the bond during this period?
Suppose the government decides to issue a new savings bond that is guaranteed to double in value if you hold it for 18 years. Assume you purchase a bond that costs $100. a. What is the exact rate of return you would earn if you held the bond for 18 years until it doubled in value? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. If you purchased the bond for $100 in 2020 at the then current interest rate of .22 percent year, how much would the bond be worth in 2028? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. In 2028, instead of cashing in the bond for its then current value, you decide to hold the bond until it doubles in face value in 2038. What annual rate of return will you earn over the last 10 years?
A bond pays $1,500 at the end of each year for five years, plus an additional $2,000 when the bond matures at the end of five years. What is the most you would be willing to pay for this bond if your opportunity cost of funds is 5 percent?