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27 August, 05:57

Suppose a Google 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

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  1. 27 August, 06:13
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    The bond is worth $2,968 today

    Explanation:

    In order to know "how much is the bond worth today", we need to calculate the present value (PV) of the bond.

    Google bond will pay $4,500 ten years from now, it means the future value (FV) is $4,500

    Tenor is 10 years

    Discounting rate is 4.25% pa

    PV = FV / ((1 + rate) ^ tenor) = $4,500 / (1+4.25%) ^10 = $2,968
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