Homework Help is Here – Start Your Trial Now!
Business
Accounting
Mario bought a bond with a face amount of $1,000, a stated interest rate of 6%, and a maturity date 12 years in the future for $989. The bond pays interest on an annual basis. Three years have gone by and the market interest rate is now 14%. What is the market value of the bond today? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Show lessA Market value

Mario bought a bond with a face amount of $1,000, a stated interest rate of 6%, and a maturity date 12 years in the future for $989. The bond pays interest on an annual basis. Three years have gone by and the market interest rate is now 14%. What is the market value of the bond today? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Show lessA Market value

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
See similar textbooks
icon
Related questions
Question

Need help with B

### Present Value Factors and Annuity Calculations: An Educational Overview In financial analysis, understanding the present value of a dollar or an annuity is crucial for making informed investment decisions. The following tables serve as reference tools for calculating these values based on varying discount rates and time periods. #### Table 6.4: Factors for Calculating the Present Value of $1 This table provides the factors needed to determine the present value of a single dollar received in the future. The table is structured with the number of periods (rows) and discount rates (columns), which range from 2% to 20%. Each cell contains the present value factor for a given combination of period and discount rate. For example: - To find the present value of $1 to be received in 5 periods (years) at a discount rate of 10%, locate the intersection of the 5th row and the 10% column, which gives a factor of 0.621. - For a discount rate of 6% over 10 periods, the present value factor is 0.558. | **No. of Periods** | **Discount Rate** | |---------------------|--------------------| | | **2%** | **4%** | **6%** | **8%** | **10%** | **12%** | **14%** | **16%** | **18%** | **20%** | | 1 | 0.980 | 0.962 | 0.943 | 0.926 | 0.909 | 0.893 | 0.877 | 0.862 | 0.847 | 0.833 | | 2 | ... | ... | ... | ... | ... | ... | ... | ... | ... | ... | | 3 | 0.942 | 0.889 | 0.840 | 0.794 | 0.751 | 0.712 | 0.674 | 0.639 | 0.604 | 0.579 | | ... | ... | ... | ... | ... | ... | ... | ... | ... | ... | ... | | 50 |
Transcribed Image Text:### Present Value Factors and Annuity Calculations: An Educational Overview In financial analysis, understanding the present value of a dollar or an annuity is crucial for making informed investment decisions. The following tables serve as reference tools for calculating these values based on varying discount rates and time periods. #### Table 6.4: Factors for Calculating the Present Value of $1 This table provides the factors needed to determine the present value of a single dollar received in the future. The table is structured with the number of periods (rows) and discount rates (columns), which range from 2% to 20%. Each cell contains the present value factor for a given combination of period and discount rate. For example: - To find the present value of $1 to be received in 5 periods (years) at a discount rate of 10%, locate the intersection of the 5th row and the 10% column, which gives a factor of 0.621. - For a discount rate of 6% over 10 periods, the present value factor is 0.558. | **No. of Periods** | **Discount Rate** | |---------------------|--------------------| | | **2%** | **4%** | **6%** | **8%** | **10%** | **12%** | **14%** | **16%** | **18%** | **20%** | | 1 | 0.980 | 0.962 | 0.943 | 0.926 | 0.909 | 0.893 | 0.877 | 0.862 | 0.847 | 0.833 | | 2 | ... | ... | ... | ... | ... | ... | ... | ... | ... | ... | | 3 | 0.942 | 0.889 | 0.840 | 0.794 | 0.751 | 0.712 | 0.674 | 0.639 | 0.604 | 0.579 | | ... | ... | ... | ... | ... | ... | ... | ... | ... | ... | ... | | 50 |
**Financial Calculations and Investment Analysis** --- **Answer the following questions using Table 6-4 or Table 6-5. (Use appropriate factor(s) from the tables provided. Round the PV factors to 4 decimals.)** **Required:** **a.** Spencer Co.’s common stock is expected to have a dividend of $5 per share for each of the next 14 years, and it is estimated that the market value per share will be $143 at the end of 14 years. If an investor requires a return on investment of 8%, what is the maximum price the investor would be willing to pay for a share of Spencer Co. common stock today? **b.** Mario bought a bond with a face amount of $1,000, a stated interest rate of 6%, and a maturity date 12 years in the future for $989. The bond pays interest on an annual basis. Three years have gone by and the market interest rate is now 14%. What is the market value of the bond today? **c.** Alexis purchased a U.S. Series EE savings bond for $150, and ten years later received $389.11 when the bond was redeemed. What average annual return on investment did Alexis earn over the ten years? --- **Complete this question by entering your answers in the tabs below.** **Required A | Required B | Required C** --- **Required B:** *Mario bought a bond with a face amount of $1,000, a stated interest rate of 6%, and a maturity date 12 years in the future for $989. The bond pays interest on an annual basis. Three years have gone by and the market interest rate is now 14%. What is the market value of the bond today? (Do not round intermediate calculations. Round your answer to 2 decimal places.)* --- **Market value:** *Input Box* [ ] --- **Navigation Buttons:** \[ < Required A \] \[ Required C > \] --- The text provides detailed instructions and questions regarding financial calculations involving bonds and stocks. The calculations involve present value factors and market value assessments based on given interest rates and periods. Users are required to complete the question by entering their answers in specific tabs provided. The scenario involves real-world financial decision-making and illustrates fundamental principles in investment analysis, essential for learners in finance and investment studies. Table references (Table 6-4 or Table 6-5
Transcribed Image Text:**Financial Calculations and Investment Analysis** --- **Answer the following questions using Table 6-4 or Table 6-5. (Use appropriate factor(s) from the tables provided. Round the PV factors to 4 decimals.)** **Required:** **a.** Spencer Co.’s common stock is expected to have a dividend of $5 per share for each of the next 14 years, and it is estimated that the market value per share will be $143 at the end of 14 years. If an investor requires a return on investment of 8%, what is the maximum price the investor would be willing to pay for a share of Spencer Co. common stock today? **b.** Mario bought a bond with a face amount of $1,000, a stated interest rate of 6%, and a maturity date 12 years in the future for $989. The bond pays interest on an annual basis. Three years have gone by and the market interest rate is now 14%. What is the market value of the bond today? **c.** Alexis purchased a U.S. Series EE savings bond for $150, and ten years later received $389.11 when the bond was redeemed. What average annual return on investment did Alexis earn over the ten years? --- **Complete this question by entering your answers in the tabs below.** **Required A | Required B | Required C** --- **Required B:** *Mario bought a bond with a face amount of $1,000, a stated interest rate of 6%, and a maturity date 12 years in the future for $989. The bond pays interest on an annual basis. Three years have gone by and the market interest rate is now 14%. What is the market value of the bond today? (Do not round intermediate calculations. Round your answer to 2 decimal places.)* --- **Market value:** *Input Box* [ ] --- **Navigation Buttons:** \[ < Required A \] \[ Required C > \] --- The text provides detailed instructions and questions regarding financial calculations involving bonds and stocks. The calculations involve present value factors and market value assessments based on given interest rates and periods. Users are required to complete the question by entering their answers in specific tabs provided. The scenario involves real-world financial decision-making and illustrates fundamental principles in investment analysis, essential for learners in finance and investment studies. Table references (Table 6-4 or Table 6-5
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 2 steps with 2 images

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Knowledge Booster
Financial Planning
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education
SEE MORE TEXTBOOKS