Illustration of valuation using multiple discount rates, Financial Management

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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

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