Present value can be used to value any stream of future payments.

a. The internal rate of return is the interest rate that equates the present value of the future payments or profits from an investment with its current cost.

b. A coupon bond is a promise to make periodic interest payments and a final principal payment on specific future dates.

i. The present value of a bond depends on its coupon rate, date of maturity, and the current interest rate.

ii. The higher the coupon rate, given the maturity and the interest rate, the higher the present value of the bond.

iii. The price of a bond is inversely related to the interest rate. The higher the price, the lower the interest rate that equates the price with the present value of the promised payments.