Face value compounding

[naveed_786110]

A note bearing interest of Rs.10,000 at 8% compounded semiannually for 6 years is discounted, after one year of its issue. Calculate the amount to be received if it is discounted at 12% compounded annually?

Solution:
I tried the following way.

I = S-P
I =P(1+i)^n - P
I= P { (1+i)^n - 1}
10,000 = P { (1+0.04)^12 - 1}
P = 16638.04=====>S=26,638.04 which is discounted at 12% rate for one year and gives 23441/-

I think the above solution is a bit illogical or I have not understood the problem properly... One more thing....Is Face value value is referred as Maturity value as well?
Please guide....Thanks

 

[Ishuda]

A note bearing interest of Rs.10,000 at 8% compounded semiannually for 6 years is discounted, after one year of its issue. Calculate the amount to be received if it is discounted at 12% compounded annually?

Solution:
I tried the following way.

I = S-P
I =P(1+i)^n - P
I= P { (1+i)^n - 1}
10,000 = P { (1+0.04)^12 - 1}
P = 16638.04=====>S=26,638.04 which is discounted at 12% rate for one year and gives 23441/-

I think the above solution is a bit illogical or I have not understood the problem properly... One more thing....Is Face value value is referred as Maturity value as well?
Please guide....Thanks

Are you asking what the market value of a bond of Rs 10000 with an 8% coupon rate due in 5 years is if the yield to maturity is 12%?

Yes Face Value and Maturity Value are generally the same thing for a note or bond. There can be a difference if, for example, the interest is accrued instead of paid but that is not generally the case.

 

[naveed_786110]

Are you asking what the market value of a bond of Rs 10000 with an 8% coupon rate due in 5 years is if the yield to maturity is 12%?

It is not mentioned....I wrote the question as it appeared in exam....
I repeat the question with the possible answers:

A note bearing interest of Rs.10,000 at 8% compounded semiannually for 6 years is discounted, after one year of its issue. Calculate the amount to be received if it is discounted at 12% compounded annually?
A) 9084
B) 8084
C) 9085
D) 9081

The problem is I am unable to understand the wording "bearing interest of Rs. 10,000"

 

[stapel]

It is not mentioned....I wrote the question as it appeared in exam....
I repeat the question with the possible answers:

A note bearing interest of Rs.10,000 at 8% compounded semiannually for 6 years is discounted, after one year of its issue. Calculate the amount to be received if it is discounted at 12% compounded annually?

The problem is I am unable to understand the wording "bearing interest of Rs. 10,000"

The grammar of the whole exercise is suspect. Whoever did the translating is not very good with English, I think...?

My guess as to what the exercise probably was meant to say is as follows:

An interest-bearing note has a face value of 10,000 rupees. The note bears interest at a rate of 8% interest, compounded twice a year; the note will mature in six years. One year after the note was issued, it is discounted; the discount rate is 12%, compounded once a year. Calculate the amount paid when ownership of the note is transferred.

You might want to consult with your instructor first, before proceeding any further. There's no point in all of us spinning our tires, trying to guess the answer, when we first need to be sure of the question. So please run the above past your teacher, and then return here with confirmation or correction. Thank you!