White Collar show -- bond valuation
Hey all,
Random question: was watching the new show on USA network "White Collar" (http://www.hulu.com/watch/104368/white-collar-pil…) and there was a really simple bond valuation question in it but it sounded weird: (for the full details in the show, click the Hulu link above and watch the segments from ~29 min to 31 min)
the quote was that the bond was "zero option, face = 1000, 9% interest, compounded for 64 yrs" (premise is that there is this bond from 1940s and it should have increased in value over the years) and I'm assuming it's a zero coupon bond and they valued it at $248,000.
so when you value a zero coupon bond it's (face value)/(1+interst)^years so it should be 1000/1.09^64 which is ~4.02
so why are they valuing it at $248,000?
The only way I know they'd get that is if they multiplied 1000 by 1.09^64 because 1.09^64 is 248, and multiplied by 1000 would be 248,000. Does USA networks just have bad scriptwriters or am I missing something?
You missed the part where they said redeemable. I think with bonds like that you are supposed to take them in to pick up your interest payments so they are essentially saying the bond is worth the $1,000 face + the interest payments that were never collected.
Actually scrap that, that would rely on there being interest on the interest not collected which would make minimal sense. Crap scriptwriters seems to be the trouble here.
Yeah they're doing interest on interest to make it sound more impressive, hah. (1+0.09*64)=6.76, not 248, haha.
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