Suppose you buy an inflation-indexed bond that will adjust with inflation and thus pay you $1,500 in real (inflation- adjusted) terms in one year.The real interest rate is 3 percent.What is the present value of the bond? (Round off your answer to the nearest dollar and pick the answer closest to the one you calculate.)
A)$1,415
B)$1,456
C)$1,471
D)$1,530

Question

Quizplus · Accepted Answer

The present value of the bond can be calculated using the formula for present value: PV = FV / (1 + r)^n, where FV is the future value ($1,500), r is the real interest rate (0.03), and n is the time period in years (1). Plugging in the values, we get PV = $1,500 / (1 + 0.03)^1 = $1,500 / 1.03 ≈ $1,456.

Suppose You Buy an Inflation-Indexed Bond That Will Adjust with Inflation