bond pricing quiz

madhuri1682
Good Student
Posts: 29
Joined: Thu Oct 04, 2012 2:09 am

bond pricing quiz

Postby madhuri1682 » Fri Nov 02, 2012 12:12 pm

What is the Net Present Value of a yearly payment starting at 100 and increasing 2% yearly for 15 years, when the discount rate is 4%? Round to the nearest tenth.
Choose one answer.
a. 1120
b. 1260
c. 1470
d. 1620
The correct answer is: 1260.
what is the formula to calculate?

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swarnendupathak
Finance Junkie
Posts: 119
Joined: Mon Sep 17, 2012 11:06 am

Re: bond pricing quiz

Postby swarnendupathak » Fri Nov 02, 2012 12:31 pm

Just discount the yearly cashflow to the present value with the discount rate. The actual formula for NPV is Present value of initial investment less the present value of the future cash flows.

Swarnendu

content.pristine
Finance Junkie
Posts: 356
Joined: Wed Apr 11, 2012 11:26 am

Re: bond pricing quiz

Postby content.pristine » Fri Nov 02, 2012 3:22 pm

Thats right Swarnendu..
Thanks 8-)


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