HOW DO I KNOW IF THE QUESTION IS ASKING ME TO CALCULATE THE PRESENT - ProProfs Discuss
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How do i know if the question is asking me to calculate the present value of the bond or just one aspect of the bond?



Asked by Freddie, Last updated: Aug 21, 2021

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John Smith

John Smith

John Smith
John Smith

Answered Sep 08, 2016

Im going to highlight key words in the following three examples to indicate to you how you would know what to calculate:1. assuming that the face value of a bond is $100, what is the present value (pv) of a 7-year, annual coupon, 7.80% bond using a discount rate of 5.00%?here you are being asked to calculate the present value of the bond. that means you need to calculate the present value of the principal and the present value of the income stream and add the two together.2. assuming that the face value of a bond is $100, what is the present value of the income stream of a 7- year, annual coupon, 7.80% bond using a discount rate of 5.00%?here you have been asked to calculate the present value of the income stream of a bond. so you would calculate the present value of the income stream and ignore calculating the present value of the principal.3. assuming that the face value of a bond is $100, what is the present value of the principal of a 7- year, annual coupon, 7.80% bond using a discount rate of 5.00%?here you have been asked to calculate the present value of the principal of a bond. so you would ignore calculating the present value of the income stream and only calculate the present value of the principal.
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