Question

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?

Answer 1

Answer: PV ≈ $2,615.17

Step-by-step explanation:

Answer 2

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.

`PV = (FV)/((1+r)^(n))`

`PV = (4500)/((1.07)^(10))`

`PV = 2287.51`