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 4.5%, how much is the bond worth today?
a. $682.09
b. $597.71
c. $703.19
d. $829.76
e. $675.06

Answer 1

a. $682.09

Explanation:

We can use the present value formula to find the value of the bond today:

PV = FV / (1 + r)^n

where PV is the present value, FV is the future value, r is the interest rate, and n is the number of periods.

Substituting the given values, we get:

PV = 1000 / (1 + 0.045)^8 = $682.09

Therefore, the bond is worth $682.09 today, which is option (a).