Roderick received a $100 savings bond for his graduation.The bond pays $100 at maturity, which is in five years.If the interest rate is 6%, the bond has a present value of $90.09.

Question

Quizplus · Accepted Answer

If the bond pays $100 at maturity in five years, with an interest rate of 6%, the present value should be lower than $100. Using the formula for present value of a single sum, we get:

PV = FV / (1 + r)^n
PV = $100 / (1 + 0.06)^5
PV = $74.40

Therefore, the statement is false. The present value of the bond should be $74.40, not $90.09.

Roderick Received a $100 Savings Bond for His Graduation