Melissa is a staff accountant for Quality Paper Company, which has strict corporate policies on appropriate use of corporate res
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Answer:
Bond Price = $86409.67366 rounded off to $86409.67
Explanation:
To calculate the price of the bond today, we will use the formula for the price of the bond. We assume that the interest rate provided is stated in annual terms. As the bond is a semi annual bond, the coupon payment, number of periods and semi annual YTM will be,
Coupon Payment (C) = 100000 * 0.06 * 6/12 = $3000
Total periods (n) = 10 * 2 = 20
r or YTM = 0.08 * 6/12 = 0.04 or 4%
The formula to calculate the price of the bonds today is attached.
Bond Price = 3000 * [( 1 - (1+0.04)^-20) / 0.04] + 100000 / (1+0.04)^20
Bond Price = $86409.67366 rounded off to $86409.67
The applicable formula is as follows:
PV = PMT [1-(1+IRR)^-n]/[IRR]
Where;
PV = Present value = -$200,000 (set as negative as it is a negative cash flow).
PMT = Annual depreciation values = $44,503
IRR = Internal rate of return
n = Period in years = 10 years
Using excel formulas (shown in the attached image);
IRR = 18%
PV = PMT [1-(1+IRR)^-n]/[IRR]
Where;
PV = Present value = -$200,000 (set as negative as it is a negative cash flow).
PMT = Annual depreciation values = $44,503
IRR = Internal rate of return
n = Period in years = 10 years
Using excel formulas (shown in the attached image);
IRR = 18%