It is payday! You look at your pay stub and realize you received a $$3,500$ bonus. What do you plan to do with your windfall? You are considering three choices: $(1)$ buy a bond, $(2)$ pay off a loan, or $(3)$ loan the money to family.

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Discussion Details

ACCTG $1$B$-$Managerial Accounting $-71818$

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Buy a bond. You want to buy a bond with a face value of $$3,500.$ The $$3,500$ will be paid at the end of $2$ years with a $12\%$ coupon $($interest$)$ paid semi$-$annually $($every $6$ months$).$

Calculate the present value of the bond.

$*$Remember there are $4$ steps to this analysis.

#$1$

Step $1$: Calculate the PV of the face value of the bond.

Step $2$: Calculate the interest payment.

Step $3$: Calculate the PV of the interest payments.

Step $4$: Add the PV of the bond to the PV of the interest payments.