A one-year discount bond with a face value of $1000 has an interest rate of 4%. What is its price?
A)$960
B)$961.54
C)$996
D)$1040

Name: A one-year discount bond with a face value of $1000 has an interest rate of 4%. What is its price? A)$960 B)$961.54 C)$996 D)$1040
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Question

Quizplus · Accepted Answer

Using the formula for present value of a one-year discount bond, we have: 
Present Value = Face Value / (1 + Interest Rate) 
Present Value = $1000 / (1 + 0.04) 
Present Value = $961.54

Therefore, the correct answer is (B) $961.54.

A One-Year Discount Bond with a Face Value of $1000