Question

A bond that appreciates 4% per year will be worth $146 in five years. find the current value.

Answer 1

$120

Explanation:

Let the initial value of bond be $X

The future value of any bond is calculated by formula

FV= PV(1+r)^n

where

• FV is future value of bond
• PV is present value of bond
• r is the rate that at which value of bond appreciate
• n is the number of years of maturity

In the problem given

FV= $146

r = 4% = 0.04 (dividing 4 by 100 we get 0.04)

n = 5

substituting these value in formula

`146 = X(1+0.04)^5\\=> X = 146/1.04^5\\=> X = 120`

PV =$X = $120

Hence current value of bond is $120.