Question

Suppose you invested in a bond that has a par value of

3,076,923.0769 British pounds, a coupon rate of 5 percent (with
payments being made at the end of each year), and four years until
its maturity.

Answer 1

To calculate the present value of a bond, you need to discount the future cash flows. Use the formula PV = C/(1+r)^1 + C/(1+r)^2 + C/(1+r)^3 + C/(1+r)^4 + M/(1+r)^4, where PV is the present value, C is the coupon payment, r is the discount rate, and M is the par value. Plug in the numbers to calculate the present value of the bond.

Step-by-step explanation:

In order to calculate the present value of a bond, we need to discount the future cash flows. In this case, the bond has a par value of £3,076,923.0769, a coupon rate of 5%, and four years until maturity. We can calculate the present value using the formula:

PV = C/(1+r)^1 + C/(1+r)^2 + C/(1+r)^3 + C/(1+r)^4 + M/(1+r)^4

where PV is the present value, C is the coupon payment, r is the discount rate, and M is the par value. Plugging in the numbers, we get:

PV = 153,846.1538/(1+r)^1 + 153,846.1538/(1+r)^2 + 153,846.1538/(1+r)^3 + 153,846.1538/(1+r)^4 + 3,076,923.0769/(1+r)^4

From here, you can solve for the present value of the bond.