Consider the following three bonds,Bond F,Bond J and Bond P.Bonds F and P mature in 1 year while Bond J matures in 4 years.Bond F and J have a face value of $10,000 while Bond P has a face value of $11,000.If the interest rate is 15%,rank the three bonds from highest present value to lowest present value.

Question

Quizplus · Accepted Answer

To calculate present value, we can use the formula 
PV = FV/(1+r)^n
where PV is the present value, FV is the face value, r is the interest rate and n is the number of years.

For Bond F, PV = 10,000/(1+0.15)^1 = 8,695.65
For Bond J, PV = 10,000/(1+0.15)^4 = 5,131.03
For Bond P, PV = 11,000/(1+0.15)^1 = 9,565.22

Therefore, the present value of the bonds from highest to lowest is Bond P, Bond F, Bond J. Thus, the correct choice is B.

Consider the Following Three Bonds,Bond F,Bond J and Bond P