xercise 6-7 (Part Level Submission) What would you pay for a $225,000 debenture

ID: 2334228 • Letter: X

Question

xercise 6-7 (Part Level Submission)

What would you pay for a $225,000 debenture bond that matures in 15 years and pays $11,250 a year in interest if you wanted to earn a yield of:

3% and 4%? (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.)

Amount to Pay for 3% and 4%?

xercise 6-7 (Part Level Submission)

What would you pay for a $225,000 debenture bond that matures in 15 years and pays $11,250 a year in interest if you wanted to earn a yield of:

3%:

Present value=$11250*Present value of annuity factor(3%,15)+$225000*Present value of discounting factor(3%,15)

=$11250*11.93794+225000*0.64186

=$278720(Approx).

NOTE:

1.Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate

=$11250[1-(1.03)^-15]/0.03

=$11250*11.93794

2.Present value of discounting factor=$225000/1.03^15

=$225000*0.64186

4%:

Present value=$11250*Present value of annuity factor(4%,15)+$225000*Present value of discounting factor(4%,15)

=$11250*11.11839+225000*0.55526

=$250015(Approx).

NOTE:

1.Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate

=$11250[1-(1.04)^-15]/0.04

=$11250*11.11839

2.Present value of discounting factor=$225000/1.04^15

=$225000*0.55526

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