Question

A bond issued by the national government pays 1000 Php at the end of each year for 6 years, plus an additional 10,000 Php when the bond matures at the end of 6 years. What is the maximum payment for this bond if the existing opportunity cost of funds is 10%?

Answer 1

Solution:

The maximum payment = $PMT\times [1 - \frac{1}{(1 +r)^{n} }\div r]$ PMT x [1 – (1/1+r)ⁿ)/r]

$=1,000\times [1 - \frac{1}{(1 +0.1)^{6} }\div 0.1]$

$=1,000\times0.57954 = 579.54$

The maximum payment for this bond is = 579.54 Php