Consider a one-year bond with a principal value of $100 and a coupon value of $5. Which of the following statements is false?

Question

Quizplus · Accepted Answer

The present value of a bond is calculated by discounting its future cash flows (coupon and principal repayment) back to the present using the current interest rate. If the interest rate is 5%, the present value of this bond, which pays a $5 coupon and returns the $100 principal at the end of the year, is exactly $100, not $105. This is because the $5 coupon plus the $100 principal repayment exactly matches the $105 future value, and when discounted at 5%, equals the bond's face value of $100.

Consider a One-Year Bond with a Principal Value of $100