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A risk-free bond will pay you $1,000 in 2 years and nothing in between. The annual discount rate is i=27.5% compounded annually. What is the bond's present value?

Respuesta :

beritop1089

Answer:

$615.15

Explanation:

Since we have only one cashflow at the end of 2 years and no coupons, find present value (PV). You can use a financial calculator and input the following;

Future value ; FV = 1,000

Duration; N = 2

Interest rate; I/Y = 27.5%

Coupon payments ;PMT = 0

then compute present value; CPT PV = 615.148

Therefore, the bond's PV is $615.15

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