Draw a cash flow diagram and calculate today present worth

Reference no: EM132190150

Question - On May 8, 2006, the Berkeley School District issued a 30-year bond for a total face value of $4 million at a bond rate of 5% with interest paid semi-annually. The prevailing effective interest rate for similar 30-year investments on the market at the time of the issue was 6.09%.

1. Sketch what a printed issue of this bond would look like. Explain each of the values printed on the bond issue.

2. Calculate the amount the District's will pay each period as the premium on an individual bond with face value $1,000.

3. Draw a cash flow diagram and calculate today's present worth of the District's bond. That is, up to how much would you be willing to pay for this $1,000-face value bond?

4. How much money will the District have, assuming they can sell all issues at customers willing to pay what you figured out in 3?

5. Assuming you could purchase this bond for S975 today. As a rational decision maker should you invest in a District bond or pursue alternative investments?

Reference no: EM132190150

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