Illustration
Let us assume that Vishal Mehta & Co., (from Illustration 1) is using the following discounting rates in place of one rate:
|
Year
|
Discounting Rate (%)
|
|
2007
|
7.50
|
|
2008
|
8.30
|
|
2009
|
8.75
|
|
2010
|
9.50
|
|
2011
|
10.15
|
In this situation, what is the PV of all cash flows as on 31st December 2007?
Solution
Table : Calculation of PV of 7% Bond using Different Discounting Rates of Each Cash Flow
|
Year
|
Cash Flow (in Rs.)
|
PV (in Rs.)
|
|
2007
|
7
|
6.51
|
|
2008
|
7
|
5.97
|
|
2009
|
7
|
5.44
|
|
2010
|
7
|
4.87
|
|
2011
|
107
|
65.99
|
|
|
Present Value =
|
88.78
|