Illustration of valuation using multiple discount rates, Financial Management

Illustration 

Let us assume that Vishal Mehta & Co., (from Illustration 1) is using the following discounting rates in place of one rate:

Year

Discounting Rate (%)

2007

   7.50

2008

   8.30

2009

   8.75

2010

   9.50

2011

10.15

In this situation, what is the PV of all cash flows as on 31st December 2007?

Solution

Table : Calculation of PV of 7% Bond using Different Discounting Rates of Each Cash Flow

Year

Cash Flow (in Rs.)

PV (in Rs.)

2007

    7

  6.51

2008

    7

  5.97

2009

    7

  5.44

2010

    7

  4.87

2011

107

65.99

 

Present Value =

88.78                              

Posted Date: 9/10/2012 5:48:47 AM | Location : United States







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