A corporation has promised to pay $1,000 twenty years from today for each bond sold now.No interest will be paid on the bonds during the twenty years, and the bonds are said to offer a 7 percent interest rate.Approximately how much should an investor pay for each bond? A)$70.00 B)$258.42 C)$629.56 D)$857.43 PV = $1,000/(1.07)²⁰ = $1,000/3.8697

Question

Quizplus · Accepted Answer

The present value of the $1,000 payment in twenty years is calculated by dividing $1,000 by the present value factor of 3.8697 (which is obtained using the 7 percent interest rate and twenty-year time period). Thus, the price that an investor should pay for each bond is $258.42. Therefore, the best choice is B.

A Corporation Has Promised to Pay $1,000 Twenty Years from Today