Question

Suppose a Google.com bond will pay $4,500 ten years from now. If the going interest rate on safe 10-year bonds is 4.25%, how much is the bond worth today?

Answer 1

2,967.92 ( dollars )

Explanation:

The amount the bond is worth, should be the present value of the bond, other wise known as PV. If it is given that Google.com bond will pay $ 4,500 ten years from now, it should be that the future value, otherwise known as FV, is 4,500 dollars.

Consider the given. There is a 4.25 percent discount rate, a time span of 10 years ( tenor / time ) and of course a future value of 4,500 dollars. Using this, we can calculate the present value -

`PV = FV / ( ( 1 + rate )^(time) ),\\PV = 4,500 / ( 1 + 4.25 / 100 )^(10)\\----\\( Calculations ) PV = ( About ) 2,967.92 ( dollars )\\Solution = 2968 ( dollars )`

As you can see, through simple calculations the solution should be that the bond worth is about $ 2,967.92