Answer to Question #113801 in Economics for Muhammad Ali Irfan

Question #113801

Direct Jet (DJ) has a bond issue with face value of $1,000, coupon rate of 7 percent, with 10 years to maturity. The interest is paid semi-annually and the bond is currently selling at 10 percent discount. Assuming your MARR is 8% compounded semi-annually, is this a good investment?

Expert's answer

We should calculate NPV to evaluate if this investment is good.

"NPV = -0.9\\times1,000 + \\frac{70}{(1 + 0.08\/2)^1} + \\frac{70}{(1 + 0.08\/2)^2} + ... + \\frac{70 + 1000}{(1 + 0.08\/2)^{20}} = -273.47."

So, as NPV < 0, then this investment is not good.