on 1 Jan 2021, John plan to buy 1000 shares of Company ABC. Those share aged...

on 1 Jan 2021, John plan to buy 1000 shares of Company ABC. Those share aged 5 years with par value 1 million/share, with coupon rate 12% paid every 1 january.

at those moment the discount rate 10% / year. As an investor, what is the the most expensive purchase price for 1000 shares?

Expert Solution

Solution:

We will calculate value as on 1st January, 2021 by discounting future cash flow @10%. Which is as under:

Nature of receipt	Date	Cash In-flow in $	Discouning Factor @ 10%	Cash In-flow after taken discounting factor
Interest @ 12% on 1 Million	01.01.2022	120,000.00	0.90909	109,090.91
Interest @ 12% on 1 Million	01.01.2023	120,000.00	0.82645	99,173.55
Interest @ 12% on 1 Million	01.01.2024	120,000.00	0.75131	90,157.78
Interest @ 12% on 1 Million	01.01.2025	120,000.00	0.68301	81,961.61
Interest @ 12% on 1 Million	01.01.2026	120,000.00	0.62092	74,510.56
Maturity of 1 Million	01.01.2026	1,000,000.00	0.62092	620,921.32
			Total	1,075,815.74

Particulars	Amount in $
Per share maximum	1,075,816
number of shares	1,000
Total Maximum value	1,075,815,735

Most expensive purchase of per share is $ 1,075,815.74 and in total for 1000 shares is $1,075,815,735

ekkarill92 answered 1 year ago

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