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bsw corporation has a bond issue outstanding with an annual coupon rate of 5.2 percent paid quarterly and four years remaining until maturity. the par value of the bond is $1,000. determine the fair present value of the bond if market conditions justify a 10.5 percent, compounded quarterly, required rate of return.



Answer :

AnjaliP102

Present value = $829.27.

The present value of the bond at 10.5% compounded quarterly is $829.27 .

What is present value?

  • The current value of a future sum of money or stream of cash flows given a specified rate of return is known as its present value (PV).
  • The present value of future cash flows is reduced by the discount rate, and the higher the discount rate, the lower the present value of future cash flows.
  • The present value (PV) of an amount of money - or a stream of cash flows - that is expected in the future is measured. Because time affects value, this value will differ from the nominal value of the cash flows. Time represents separation from money, and separation creates risk, which offsets value.

Here we use present value formula,

The time period is represented by the NPER.

Here given,

$1,000 = future value

Interest rate = 10.5% / 4 quarters = 2.625%

NPER = 4 x 4 x 4 = 16 years

PMT = $1,000 x 5.2% / 4 quarters  = $13

The formula is :

= PV(Rate;NPER;PMT;FV;type)

So, after resolving the formula, the present value is $829.27 .

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https://brainly.com/question/20813161

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tutorconsortium127

The present value of the bond at 10.5% compounded quarterly is $829.27 .

What is meant by present value?

Given a certain rate of return, a future sum of money or stream of cash flows is now valued as their present value (PV).

The discount rate lowers the present value of future cash flows; the higher the discount rate, the lower the present value of future cash flows.

A sum of money, or a stream of cash flows, that is anticipated in the future is measured by its present value (PV). This value will be different from the nominal value of the cash flows since time impacts value. Time is the separation of money from you, and that detachment produces risk, which lessens value.

The time period is represented by the NPER.

Here given,

$1,000 = future value

Interest rate = 10.5% / 4 quarters = 2.625%

NPER = 4 x 4 x 4 = 16 years

PMT = $1,000 x 5.2% / 4 quarters  = $13

The formula is:

= PV(Rate; NPER; PMT; FV; type)

Therefore, after resolving the formula, the present value exists $829.27 .

To learn more about present value refer to :

brainly.com/question/20813161

#SPJ4

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