Question

On September 16, 2023, a corporation sold to a bank, a customer's 18 percent, 60 -day note, dated August 31, 2023, with a face amount of ($ 3,000). The bank discounted the note at 15 percent.

Answer 1

To calculate the present value of a bond, use the present value formula. Given the bond details, the present value of the bond is $2,640.74 at a discount rate of 8%. If the discount rate rises to 11%, the present value decreases to $2,401.15.

Step-by-step explanation:

Bond Valuation and Discount Rate

To calculate the present value of a bond, we use the present value formula. For this bond with a face amount of $3,000, an interest rate of 8%, and a discount rate of 8%, we can calculate its present value. Using the formula:

Present Value = Cash Flow / (1 + Discount Rate)n

The present value of this bond is $3,000 × (1 + 0.08)-2, which equals $2,640.74. If the discount rate rises to 11%, the present value is calculated as $3,000 × (1 + 0.11)-2, which equals $2,401.15.