Computation of value of the bond at various options

Reference no: EM1315458

Your task for this module is to apply the concept of present value to your chosen company. Suppose your company is selling a bond that will pay you $1000 in one year from today. Keep in mind that if your company has financial difficulties in one year you might not get your full $1000 back. Given that a dollar one year from now is always worth less than a dollar today, you most certainly would not pay a full $1000 for this bond. Given the concepts of the time value of money,

(1) How much would you pay for this bond today? Take into consideration your own personal risk preferences, interest rates, inflation, and the probability your company will not be able to pay you back in one year.

(2) Based on your answer to the previous question, what would be your discount rate for this bond? Use the present value formulas from the background materials and show your work.

Reference no: EM1315458

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