I have a very basic question from Bonds and leases chapter.

When do you use Present value, Fair value or Future value? I came across a question asking for N/P amount in B/S. They have calculated the payments made in Face value (of annuity due) and then recorded it in Present value.

Is it that, the actual amount received or given is always face value and whatever is recorded in B/S is at Present value.

I am not sure whether my question makes sense or not but just I was really confused as when should I calculate using PV table and when not.

I appreciate you answers.

Thanks

Jams wrote: i was stuck with chapter 5 for long time, for some reason i couldn;t understand amortization, warrants and convertible bonds, it was getting frustrating, so i listen to the lectures worked all the MCQ's, but no luck. then i looked into wiley's simulation, wiley had the same MCQ' s as becker, but sims were very good. i started getting an idea about the whole thing, and then i went back to material, and did those Q's again. thank god i get it now. anyone having same trouble just hang on, divide it piece by piece and you will feel better.

Bondholders get the stated rate of interest, i.e. the amount of bond times
rate stated in the contract.

They why do they say that market rate is the rate of interest actually owned
by the investor?

CPA_Starter wrote: Bondholders get the stated rate of interest, i.e. the amount of bond times rate stated in the contract. They why do they say that market rate is the rate of interest actually owned by the investor?

Think of it this way.

The rate&maturity value is set by the contract, so those cannot be changed without calling&reissuing the bonds.

The only way the investor can affect his personal ROI is by adjusting his payment for the bond.

For example, if an investor purchases a bond with par value $1,000 and coupon interest of 10% for $800, then the present value of the 10% coupon of 1,000 (100) and the 1,000 maturity value represents a higher return than the investor would have recieved if he had paid for the bond at face. Similarly, if he pays more than $1,000 for the bond, it represents a lower return than if he had purchased it at face. You can verify this with a financial calculator or Excel.