1. You are purchasing a bond with face value 1000 a coupon rate 12% paid semi an

Question

1. You are purchasing a bond with face value 1000 a coupon rate 12% paid semi annually and a maturity of 15 years. Investors are seeing 10% yield to maturity. What must you pay for it today?
2. You own a physical therapy clinic and come upon some exercise equipment for sale that would allow you to see more patients and generate extra cash flow $1000 each year over next three years. What are you willing to pay for this euipment if your discount rate is 8%

1. You are purchasing a bond with face value 1000 a coupon rate 12% paid semi annually and a maturity of 15 years. Investors are seeing 10% yield to maturity. What must you pay for it today?
2. You own a physical therapy clinic and come upon some exercise equipment for sale that would allow you to see more patients and generate extra cash flow $1000 each year over next three years. What are you willing to pay for this euipment if your discount rate is 8%


2. You own a physical therapy clinic and come upon some exercise equipment for sale that would allow you to see more patients and generate extra cash flow $1000 each year over next three years. What are you willing to pay for this euipment if your discount rate is 8%

Explanation / Answer

1.Present value of the bond is $ 60 x 13.765 + 1000 x 0.174 = $ 999.90.

2. I would be willing to pay $ ( 1000 x 2.577) = $ 2,577 for the exercise equipment.

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