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
Cash Flow (in Rs.)
PV (in Rs.)
7
6.51
5.97
5.44
4.87
107
65.99
Present Value =
88.78