FIN504.W4 - P6-13 Valuation of assets Asset A End of Year 1...

This preview shows page 1 - 6 out of 14 pages.

P6-13 Valuation of assets Asset End of Year Amount PVIF or PVIFA A 1 $5,000 2 $5,000 3 $5,000 Calculator Solution B 1–∞ $300 1/0.15 C 1 $0 2 $0 3 $0 4 $0 5 $35,000 0.476 Calculator solution: D 1 through 5 $1,500 3.605 6 $8,500 0.507 Calculator solution: E 1 $2,000 0.877 2 $3,000 0.769 3 $5,000 0.675 4 $7,000 0.592 5 $4,000 0.519 6 $1,000 0.456 Calculator solution:
$10,870.00 $10,871.36 $2,000.00 $16,660.00 $16,663.96 $5,407.50 $4,309.50 $9,717.00 $9,713.40 $1,754.00 $2,307.00 $3,375.00 $4,144.00 $2,076.00 $456.00 $14,112.00 $14,115.27 Present Value of Cash Flow
P6-17 Bond Table Values A. (1) ( 2 ) ( 3 ) B. Bond Value vs. Required Return Bond Value Required Return (%) $1,225.96 15% $1,000.12 11% $783 8% C. D. Bond value and changing required returns B 0 = $110 x (6.492) + $1,000 x (0.286) B 0 = $110 x (5.421) + $1000 x (0.187) B 0 =$110 X (7.536) + $1000 x (0.397) If the required return is less than the coUpon rate, the greater than par, then the bond sells at a premium. The discount if the return is greater than the coupon rate a is less than the par value. Two possible reasons that could cause the required ret the coupon rate are economic risks and firm risks.
Calculator Solution $1,000.12 $783 $1,225.96 market value is e bond sells at a and the market value turn to differ from 15% 11% 8% $800.00 $850.00 $900.00 $950.00 $1,000.00 $1,050.00 $1,100.00 $1,150.00 $1,200.00 $1,250.00 Bond Value vs Required Return Required Return Bond Value
P6-18

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture