Question

1. Determine the amount of cash a company would pay for a bond investment if the face amount of the investment is $650,000, the stated rate is 8%, and the term of the bond is 4 years. The prevailing market rate is 9%. Use Present Value table of $1.

2. Determine the amount of cash a company would pay for a bond investment if the face amount of the investment is $480,000, the stated rate is 12%, and the term of the bond is 6 years. The prevailing market rate is 10%. Use Present Value table of $1.

Answer 1

Dear student, only one question is allowed at a time. I am answering the first question

Since the table is not provided, I am answering through calculations

The present value of a bond is the present value of all future cash flows receivable from the bond discounted at prevailing market rate

The cash flows from the bond is the periodic interest payment and Face value

Periodic interest

= Face value x Interest rate

= $650,000 x 8%

= $52,000

Present value factor

= 1 / (1 + r) ^ n

Where,

r = Market rate = 9% or 0.09

n = Years = 4 years

So, PV Factor for year 2

= 1 / (1.09 ) ^ 2

= 1 / 1.1881

= 0.841679

The following table shows the calculations

Calculations	A	B	C = A x B
Year	Cash Flow	PV Factor	Present value
1	52,000.00	0.917431	47,706.42
2	52,000.00	0.841680	43,767.36
3	52,000.00	0.772183	40,153.54
4	52,000.00	0.708425	36,838.11
4	650,000.00	0.708425	460,476.39
		Present value	628,941.82

So, the present value of the bond is $ 628,941.82 which is the cash price