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Suppose an exxon corporation bond will pay $4,500 ten years from now. If the going interest rate on safe 10-year bonds is 7.00%, how much is the bond worth today?

Respuesta :

Answer: The bond is worth $2287.51 today.

We have

Value of the bond after 10 years  (Future Value - FV)          $4500

Number of years                                                                           10

Going rate                                                                                     7%                                                                              

We need to discount the FV of the bond by the discount factor at 7% for 10 years to arrive at the bond's price today.

[tex]PV = \frac{FV}{(1+r)^{n}}[/tex]

[tex]PV = \frac{4500}{(1.07)^{10}}[/tex]

[tex]PV = 2287.51[/tex]

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