In this presentation, we will calculate the bond price explaining how this can be done using present value formulas within Excel. Remember that the bonds is going to be a great tool for both accounting and finance to describe the present value calculation. So that’s why it’s going to be used. Oftentimes It has two cash flows related to it, one’s going to be the face amount of the bond that’s going to be due at the end of the term of the bond. In our case, it’s going to be two years semiannual or four time periods. And the other is the flow of interest. So bonds are a great example because they have the two types of present value problems that we need in one area. So even if you’re not in an area where you’re dealing with bonds all the time, they’re still going to be used and useful to understand present value types of calculations. So here we’ve got the bond is going to have one cash flow of 100,000 at the end of four periods or two years, and we need to figure out what the present value is in order to price it back here at your at time period zero. And then we have these four payments in terms of the annuity 4000. And we need to take those and present value them, we could take each period and present value each payment and present value it. But the easier thing to do is to present value, an annuity when it’s applicable and present value, the one amount when it’s applicable. And therefore think of that about these as two basically separate cash flows that we’re going to have to present value separately. So we can do this multiple different ways. And it just depends on what you’re what tools you have. And where you are, in order to know how to do it. What you want to know is just that there’s different tools to do it. Anytime someone uses a different tool. What are they doing the same thing? And and when can you apply these tools and what’s actually happening here. So that’s what’s actually happening. We’re present valuing this information.
In this presentation, we will take a look at present value formulas related to bonds. One of the reasons bonds is so important to accounting and finance is because they’re a good example of the term of present value of money. We’re trying to look for an equal measure of money, when we think of bonds and bonds is going to have this relationship between market rates and the stated rate, which helps us to kind of look through and figure out these types of concepts. So even if we don’t work with bonds, in other words, if we’re not planning on issuing bonds, or buying bonds, or knowing anything about bonds not being important to us, the time value of money is a very important concept and bonds is going to be a major tool to help us with that. Why is bonds so useful for learning time value of money, because there’s two types of cash flows with bonds meaning at the end of the time period, we typically are going to get the face amount of the bond that 100,000 similar to a note and then we’ve got the interest payments that are going to happen on a periodic To basis, and therefore we have these two different types of cash flows, that we can use two different formulas for, to think about how to equalize.