{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Comprehensive_Problem-_Chapter_7_7thEd._

Comprehensive_Problem-_Chapter_7_7thEd._ - Chapter 7 Mini...

Info icon This preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 7- Mini Case THE MONETARY VALUE OF ANYTHING IS THE PRESENT VALUE OF THE FUTURE CASH FLOWS. What future cash flows does a bond have? Interest payments (Unless $0 coupon rate) Payment of the par value Any others? 5 Variables: Present Value (PV) Future Value (FV) Periods (N) Interest Rate (I) Payments (Pmt.) a. Value (to you) Means you solve for PV. . reflects: your cost of capital your perception of risk i.e. YOUR discount rate All are $1,000 par value bonds Means FV = $1,000.00 Payments = Actual amount is fixed. Equals coupon interest rate times par value.
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Information given Are 5 variables Need to be given 4 Coupon Rate Par Value Microsoft 5.250% $1,000.00 Ford 7.125% $1,000.00 Xerox 8.000% $1,000.00 Note the number of decimal points. Periods (years here) = Microsoft 30 Ford 25 Xerox 16 Interest = Depends on riskiness of individual bond.- given in These are the INVESTOR's required rate of retu Microsoft 6.00% Ford 15.00% Xerox 10.00% FV = Amount that will be paid at maturity, I.e. the par value. (all $1,000 here) For each bond you are given 4 variables. FV (Future value) = par value I = individual required rate of return for each bond gi N = Individual time to maturity for each bond given Pmt. = Par value x coupon rate for each bond. Microsoft FV = $1,000.00
Image of page 2
Pmt. = $52.50 N = 30 I = 6.00% PV = ? Ford FV = $1,000.00 Pmt. = $71.25 N = 25 I = 15.00% PV = ? Xerox FV = $1,000.00 Pmt. = $80.00 N = 16 I = 10.00% PV = ?
Image of page 3

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 4
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern