How much is a bond worth if it pays $55 per year in interest and the market interest rate is 8%?
A) $440
B) $687.50
C) $787.60
D) $1,250

Name: How much is a bond worth if it pays $55 per year in interest and the market interest rate is 8%? A) $440 B) $687.50 C) $787.60 D) $1,250
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Question

Quizplus · Accepted Answer

The bond's worth is calculated using the formula for the present value of a perpetuity: PV = C / r, where C is the annual interest payment ($55) and r is the market interest rate (0.08). Thus, PV = $55 / 0.08 = $687.50.

How Much Is a Bond Worth If It Pays $55