Answered: Suppose a U.S. government bond promises…

Suppose a U.S. government bond promises to pay $3.000 four years from now. If the going interest rate on 4-year government bonds is 5%. how much is the bond worth today? PV = FV, /1 + 1

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter2: The Domestic And International Financial Marketplace

Section: Chapter Questions

Problem 4P

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Concept explainers

Treasury Market

On-the-run securities are the most recently issued securities in the market depth and are therefore traded at some premium. The off-the-run securities are the ones issued just before the most recent ones. The on-the-run securities have a lower yield to the investor than the off-the-run securities.

Question

Suppose a U.S. government
bond promises to pay $3.000
four years from now. If the
going interest rate on 4-year
government bonds is 5%.
how much is the bond worth
today?
PV
= FV /1 + 1N

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