WHAT IS THE MOST DIRECT (PVA) Present Value of an Annuity METHOD TO CALCULATE TH
ID: 2743678 • Letter: W
Question
WHAT IS THE MOST DIRECT (PVA) Present Value of an Annuity METHOD TO CALCULATE THE FOLLOWING QUESTION:
A 1. A cash flow of $856.65 is paid 123 times per year for the next 8 years. The NAR2 is 5%. What is the present value of this series?
Pl Please answer this question to the closest cent. CORRECT ANSWER: 696,211.64
Q 2. A bond pays a semi-annual coupon. The coupon rate is 28.23%. The NAR2 is 23.5%. The bond matures in thirty years. The face value is $100,000. What is the bond value?
CORRECT ANSWER: $120,102.02
Explanation / Answer
Answer 1:
Present Value = 856.65 * (1-(1/1.0.0004065)^984)/0.0004065
Present Value = $696,211.64
Here, 984 = 8*123
0.0004065 = 0.05/123
Answer 2.
Semi-annual Coupon = $14,115
Number of coupon payment = 60
Semi-annual Rate = 11.75%
Bond Value = 14,115*PVIFA(11.75%, 60) + 100,000*PVIF(11.75%, 60)
Bond Value = $120,102.02
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