Question

Suppose a State of California bond will pay $1,000 eight years from now. If the going interest rate on these 8-year bonds is 5.5%, how much is the bond worth today

Answer 1

Answer:

the bond worth today is $651.60

Explanation:

The computation of the amount of bond worth today i.e. present value is to be shown below:

Present value = Amount ÷ (1 + interest rate)^number of years

where,

Amount = $1,000

Interest rate = 5.5%

And, the number of years is 8

Now placing these values to the above formula

So, the worth of the bond today is

= $1,000 ÷ (1 + 0.55)^8

= $651.60

hence, the bond worth today is $651.60