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Bond A Stock insurance Value in '000 PV Inflow Year 0 0 0 0 Assume Discount rate 10% Value in'000 PV 5000 4545 7000 5785 8000 6011 25000 17075 45000 33416 Long term note Value in'000 PV 1 5460 4964 5460 4513 5460 4102 5460 3730| PV of outflows 21842 17309 NPV 16108 nm + Value in'000 PV 464 422 464 383 464 349 23200 15846 24592 17000 16417 3 27752 27752 PV of outflows PV of outflows 18955 18955 14461 PV of inflows NPV NPV Note: the company should choose Bond B as an option as it gives maximum Net present value. Bond B Value in'000 PV 1424 1295 1424 1177 1424 1070 4 17800 12158 PV of outflows 22072 15699 NPV 17718 Bond C Value in'000 PV 1 1000 909 2 1000 826 1000 751 20000 13660 PV of outflows 23000 16147 NPV 17269 nm + Assumption: we have assumed the discount rate to be 10% while calculations NPV =PV of inflow- PV of Outflow PV= Amount/(1+discount rate) period
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