Suppose Matt's New Cars issues a discount bond with a face value of $10,000 payable in one year with an interest rate of 4%.How much will they receive for the bond?
A) $9,600
B) $9,615
C) $10,000
D) $10,400

Question

Quizplus · Accepted Answer

The amount received for the bond is the present value of the face value discounted at the given interest rate. Using the formula: 
PV = FV/(1+r), where PV is the present value, FV is the face value, and r is the interest rate. 
Substituting: 
PV = 10,000/(1+0.04) 
PV = $9,615 
Therefore, the best choice is B as it matches with the calculated present value.

Suppose Matt's New Cars Issues a Discount Bond with a Face