Final answer:
The face value of a 60-day, 10% note for $10,800 dated April 15th is $10,800. This is the value that will be repaid at the note's maturity. When calculating the present value of a bond, an increase in discount rates leads to a decrease in present value of the bond.
Step-by-step explanation:
The subject matter being asked about pertains to understanding the concepts of the face value of a note and how to calculate the present value of a bond when given the discount rate and future cash flows. In the scenario given, a 60-day, 10% note for $10,800, with the date being April 15th, is discussed. The question at hand is determining the face value of the note, which is the amount on which interest is calculated and will be repaid at maturity without any additional interest. Since no interest seems to have been added, the face value is simply the amount stated, which is $10,800. This concept is important in Business and Finance. Calculating the present value of a bond requires knowledge of the interest payments, principal amount, and discount rates. If interest rates increase, the value of the bond in the present will decrease, as future cash flows need to be discounted more heavily.
For example, a two-year bond with a face value of $3,000 paying 8% annual interest would have yearly interest payments of $240. If the discount rate equals the bond's interest rate, the present value of the bond can be calculated by discounting the interest payments and principal by the same rate. However, if discount rates rise, the present value of future cash flows would be less than the face value of the bond. Applying these concepts, if interest rates rise from 8% to 11%, the bond's present value would be recalculated using the higher discount rate, resulting in a lower present value.