This tells you that $1,000 five years from now is only worth $613.50 at the present time, given the alternative investment option.
5. Calculate the bracketed portion of the formula and divide by the periodic alternative rate. The result is the multiplier for discounting the coupon payments:
MTV = $30 * 7.73 + $613.50
6. Multiply the result by the coupon payment to discover the total of all future coupon payments in present day dollars:
MTV = $231.90 + $613.50
This tells you that the total of all 10 coupon payments of $30 only has a present value of $231.90.
7. Add the two figures together to get the maximum theoretical value:
MTV = $845.40
This means you should pay $845.40 for the bond to get a comparable investment to the alternative. If you pay a lower price, you’ll enjoy an even better yield, but if the purchase price is higher, you’re better off investing in the alternative.