Case Scenario:
Apply the concept of present value to Accuracy. Suppose Accuracy is selling a bond that will pay you $1000 in one year from today. Keep in mind that if Accuracy has financial difficulties in one year you might not get your full $1000 back. Given that a dollar one year from now is always worth less than a dollar today, you most certainly would not pay a full $1000 for this bond.
Given the concepts of the time value of money, answer the following questions in a two to three page response:
Problem 1. How much would you pay for an Accuracy bond today? Take into consideration personal risk preferences, interest rates, inflation, and the probability that Accuracy will not be able to pay you back in one year. Note: no need for any math equations for this part. Just explain how much you would personally pay for a $1000 bond for Accuracy and why.
Problem 2. Based on your answer to the previous question, what would be your discount rate for this bond? Use the present value formulas to show your work.
Problem 3. Pick two other companies in the same industry as Accuracy. One should be one that you would pay less for a $1000 bond than you would from Accuracy and another one that you would pay more for a $1000 bond compared to from Accuracy. Explain why you would pay more or less for their bonds.