Question

What is the present value of a one-year, $100 bond that pays no coupon payments if borrowing rates are 4%?

a) $96.15
b) $100
c) $104.17
d) $96.40

Answer 1

The present value of the bond is approximately $96.15

Step-by-step explanation:

The present value formula can be used to calculate the present value of a bond. The formula is:

PV = FV / (1 + r)^n

Where:

• PV is the present value
• FV is the future value of the bond
• r is the interest rate
• n is the number of periods

In this case, the future value of the bond is $100, the interest rate is 4%, and the number of periods is 1 year. Plugging these values into the formula, we get:

PV = 100 / (1 + 0.04)^1

PV = 100 / 1.04

PV ≈ $96.15