Suppose you are deciding whether or not to buy a particular bond.If you buy the bond and hold it for 5 years,then at that time you will receive a payment of $10,000.If the interest rate is 6 percent,you will buy the bond if its price today is no greater than
A) $8,225.06.
B) $7,652.58.
C) $7,472.58.
D) $6,998.98.

Question

Quizplus · Accepted Answer

To determine whether or not it is worth buying the bond, we need to calculate its present value using the formula:

PV = FV / (1 + r)^n

where PV is the present value, FV is the future value, r is the interest rate, and n is the number of years.

In this case, we know that FV = $10,000, r = 6%, and n = 5. Plugging these values into the formula, we get:

PV = $10,000 / (1 + 0.06)^5 
PV = $7,472.58

Therefore, you should only buy the bond if its price today is no greater than $7,472.58.

Suppose You Are Deciding Whether or Not to Buy a Particular