What is the present value of a $1000 bond which pays $45 each year for 15 years, with the first payment one year from now? Assume the interest rate is 5.5% per year compounded annually.

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Quizplus · Accepted Answer

The present value of the bond is calculated by discounting the annual coupon payments and the face value of the bond at the given interest rate. The present value of the coupon payments is calculated using the formula for the present value of an annuity, and the present value of the face value is calculated using the formula for the present value of a single sum. The sum of these two present values gives the total present value of the bond, which is $899.62.

What Is the Present Value of a $1000 Bond Which