Business, 22.02.2020 01:41 ziahziah

Bond price: Pierre Dupont just received a cash gift from his grandfather. He plans to invest in a five-year bond issued by Venice Corp. that pays an annual coupon rate of 5.5 percent. If the current market rate is 7.25 percent, what is the maximum amount Pierre should be willing to pay for this bond?

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Answer from: tay27831

$929 approx

Explanation:

Assumption: Since face value of the bond is not provided, it has been assumed to be $1000 and solved accordingly.

The present value of a bond i.e bond price is the sum total of the present value of it's future coupon payments in addition to redemption value, both discounted at yield to maturity rate. It is expressed as

$B_{0} = \frac{C}{(1\ +\ YTM)^{1} } \ +\ \frac{C}{(1\ +\ YTM)^{2} } \ +.....+\ \frac{C}{(1\ +\ YTM)^{n} } \ +\ \frac{RV}{(1\ + YTM)^{n} }$

where, $B_{0}$ = Present Value of the bond

C = Annual coupon payment

YTM = Yield to maturity rate

n = No of years to maturity.

Here, C = $55 (assumed par value of each bond as $1000)

YTM = 7.25% per annum

n = 5 years

Putting these values in above equation, we get,

$B_{0} = \frac{55}{(1\ +\ .0725)^{1} } \ +\ \frac{55}{(1\ +\ .0725)^{2} } \ +.....+\ \frac{55}{(1\ +\ .0725)^{5} } \ +\ \frac{1000}{(1\ + .0725)^{5} }$

Hence, 4.073 × 55 + 1000 × 0.7047

= $929 approx

Hence, Pierre should pay less than it's face value for such a bond.

Answer from: Quest

both are integral parts of a corporate balance sheet. the cash flow statement, or statement of cash flows, measures the sources of a company's cash and its uses of cash over a specific time period. the income statement measures a company's financial performance, such as revenues, expenses, profits or losses over a specific time period (in fact, it's sometimes called a statement of financial performance).

a cash flow statement shows exactly how much money a company has received and how much it has spent, traditionally over a period of one month. it captures the current operating results and changes on the balance sheet, such as increases or decreases in accounts receivable or accounts payable, and does not include noncash accounting items such as depreciation and amortization. the cash flow generally comes from revenue received as a result of business activity, but it may be augmented by funds available as a result of credit. a cash flow statement is used to determine the short-term viability and liquidity of a company, specifically how well it is positioned to pay its bills and vendors.

Answer from: Quest

Ok they will delete in a matter of time

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