Need help on how to get NPV

Question

At the beginning of the year, John invested $10,000 in some debentures. He will receive a 10% coupon payment each year, paid yearly, and the principal will be repaid at the end of 5 years.

Using a discount rate of 8%, what is the approximate net present value (NPV) of John’s investment?

I keep getting " $6,007.29 " but the answer is " $798.54 "

Answer 1

The answer is $798.54

The question asks us to calculate NPV which is Sum of all discounted Cash flows-Initial investment. The sum of all discounted cash flows is calculated in the answer above answered by Lenny D. $10,798.54.

We can also calculate it using Excel or fin calculator by plugging in the numbers:

r=8%

Coupon=10%*10,000=1,000

FV=10,000

n=5

Calculate for PV---> PV=10,798.54

When we subtract out initial investment of $10,000 we get NPV of $798.54

Answer 2

Neither answer is right.

a 10% coupon is essentially a 5 year annuity with a payment of 1000.

PV =1000*(1/.08)(1-(1/(1.08)⁵)) = 3992.71.

The 10,000 Principal discounted backl to PV at 8% is

((1/1.08)⁵)*10,000 = 6805.83

The sum of the two is the price of the bond = 10,798.54

I have been discounting cash flows longer than Tom Brady has been throwing footballs.

Best,

Lenny