A zero-interest bond pays $200,000 in seven years.What amount would you be willing to pay to acquire the bond today if you want to earn a return of approximately 10%?

Question

Quizplus · Accepted Answer

To earn a return of approximately 10%, the present value of the bond must be discounted at a 10% rate:
PV = $200,000 / (1 + 0.10)^7 = $102,604. Therefore, the amount to be paid to acquire the bond today would be approximately $102,600 (rounded off to the nearest hundred dollars). None of the other answer choices match this value.

A Zero-Interest Bond Pays $200,000 in Seven Years