Suppose a U.S. Treasury bond promises to pay $9,780.13 in three years. If bonds of this type are generating a 4 percent annual return, how much would you pay for this bond today?
A) $8,429.71
B) $11,001.32
C) $8,694.50
D) $9,112.78

Question

Quizplus · Accepted Answer

To find the present value of the bond, you use the formula for present value: PV = FV / (1 + r)^n, where PV is the present value, FV is the future value ($9,780.13), r is the annual interest rate (0.04), and n is the number of years (3). Plugging in these values gives PV = $9,780.13 / (1 + 0.04)^3, which calculates to approximately $8,694.50.