A corporate bond has a $10,000 face value, five-year maturity, and an 8% annual coupon rate. If interest rates are 6%, what is the present discounted value of the bond?

Question

Quizplus · Accepted Answer

The present discounted value of the bond is calculated by discounting the future cash flows (annual coupon payments and the face value at maturity) back to their present value using the current interest rate. The bond pays an 8% annual coupon on a $10,000 face value, which is $800 per year for 5 years, and repays the $10,000 face value at the end of 5 years. Using the formula for the present value of an annuity and the present value of a single sum for the face value repayment, and discounting these at the current interest rate of 6%, the correct present value of the bond is calculated to be $10,842.47.

A Corporate Bond Has a $10,000 Face Value, Five-Year Maturity