A bond maturing in 10 years pays $80 each year (including year 10)and $1,000 upon maturity.Assuming 10 percent to be the appropriate discount rate,the present value of the bond is
A) $877.11.
B) $1,000.00.
C) $416.39.
D) $1,785.67.

Question

Quizplus · Accepted Answer

The present value of the bond is calculated by discounting the annual interest payments and the principal repayment at the bond's yield to maturity (discount rate of 10%). The present value of the annual interest payments ($80 per year for 10 years) can be found using the present value of an annuity formula, and the present value of the principal ($1,000) can be found using the present value of a single sum formula. The total present value is the sum of these two present values.

A Bond Maturing in 10 Years Pays $80 Each Year