Dear Mike,
In a question, the company has bought a bond of $300 on 30 June 2009, the interest thereon payable half yearly in arrears. The bond shall mature on 30 June 2011. Assuming the discount rate of 8%, calculate the present value of the bond on 30 June 2009.
I understand that the cash flow to the company will be $12 on 31 December 2009 + $12 (30 June 2010 ) + $12(30 December 2010)+ $312 (30 June 2011). Is it correct?
If the interest is payable half yeraly, could you kindly help to advise what formula I shall use to discount the cash flow? Is the discount rate (1 divided by 0.8 divided by 2 for first half year)? And what is the difference if the interst is payable in advance instead of in arrears?
Thank you in advance for your help.
In a question, the company has bought a bond of $300 on 30 June 2009, the interest thereon payable half yearly in arrears. The bond shall mature on 30 June 2011. Assuming the discount rate of 8%, calculate the present value of the bond on 30 June 2009.
I understand that the cash flow to the company will be $12 on 31 December 2009 + $12 (30 June 2010 ) + $12(30 December 2010)+ $312 (30 June 2011). Is it correct?
If the interest is payable half yeraly, could you kindly help to advise what formula I shall use to discount the cash flow? Is the discount rate (1 divided by 0.8 divided by 2 for first half year)? And what is the difference if the interst is payable in advance instead of in arrears?
Thank you in advance for your help.
