Using the Following Partial Table of Present Value of $1

question 125

Multiple Choice

Using the following partial table of present value of $1 at compound interest, determine the present value of $50,000 to be received 3 years hence with earnings at the rate of 12% a year: $$\begin{array} { l l l l } \text { Year } & 6 \% & 10 \% & 12 \% \\\hline 1 & 0.943 & 0.909 & 0.893 \\2 & 0.890 & 0.826 & 0.797 \\3 & 0.840 & 0.751 & 0.712 \\4 & 0.792 & 0.683 & 0.636\end{array}$$

• A) $37,550
• B) $31,800
• C) $35,600
• D) $39,850

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Definitions:

Yield To Maturity

The total return anticipated on a bond if the bond is held until its maturity date.

Par Value

The face value of a bond or the stated value of a stock, set at the time of issuance and often used in determining its worth at maturity.

Coupon Rate

The interest rate that an issuer of a bond promises to pay annually or semi-annually to the holder.

Default Risk Premiums

Default risk premiums are additional returns that investors require to compensate for the risk that a borrower might fail to make the required payments on their debt.