You have purchased a zero coupon bond that will pay $15,000 to your newborn child in 21 years.If this bond is discounted at a rate of 2.875% per year,what is today's price (present value)for this bond?

Question

Quizplus · Accepted Answer

The formula for calculating the present value of a zero coupon bond is:
PV = FV/(1+r)^n
Where PV is the present value, FV is the future value or maturity value, r is the discount rate, and n is the number of years until maturity.

Plugging in the given values:
PV = 15,000/(1+0.02875)^21
PV = 8,271.50

Therefore, the present value of the bond is $8,271.50, which is closest to option C.

You Have Purchased a Zero Coupon Bond That Will Pay