A zero-interest bond pays $600,000 in 10 years.What amount would you be willing to pay to acquire the bond today if you want to earn a return of approximately 8%?

Question

Quizplus · Accepted Answer

The present value of the bond can be calculated using the formula:PV = FV / (1 + r)^nwhere:PV is the present valueFV is the future valuer is the annual interest raten is the number of yearsIn this case, the future value is $600,000, the annual interest rate is 8%, and the number of years is 10. Plugging these values into the formula, we get:PV = 600,000 / (1 + 0.08)^10PV = $277,900Therefore, the amount you would be willing to pay to acquire the bond today is $277,900.

A Zero-Interest Bond Pays $600,000 in 10 Years