Question
Asked Oct 26, 2019

You are considering purchasing a bond. The bond will pay you $100 at the end of each year for 20 years. At the end of the 20th year, the bond will also pay you back its $1,000 face value. Assuming a 4% discount rate, how much is this bond worth today? Round to the nearest dollar.

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Step 1

Time value of money:

 

Time value of money is a vital concept to the investors, as it suggests them the money they are having today is worth more than the value promised in the future.

Step 2

Calculate the worth of the bon...

1
PV FV x
п
(1+i
1
= ($100x 20 years+$1,000) x
20
(1+4%
$3,000x2.191123
$1,369
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1 PV FV x п (1+i 1 = ($100x 20 years+$1,000) x 20 (1+4% $3,000x2.191123 $1,369

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