Question

Sharda bought a $1000 corporate bond this year at a discount for $975. The bond pays $80 of interest at the end of each of the next 5 years, at which time it will mature at its face value. If her required rate of return is 8.25%, what is the net present value of the investment?a. $15.08b. $13.93c. -$12.80d. -$35.23

Answer 1

Net present value = $15.08

Step-by-step explanation:

given data

future value = $1000

interest = $80

discount = $975

time = 5 year

rate of return = 8.25%

solution

first we get here bond value that is express as in excel formula

bond value = PV(rate, NPER, PMT, FV) × -1

here PMT is $80 and Fv is $1000 and NPER is 5 and rate is 8.25%

put here value and we get

bond value = - 990.08 × -1 = 990.08

so

Net present value of investment will be

Net present value = bond value - discount ......................1

put here value

Net present value = $990.08 - $975

Net present value = $15.08