Stanton Corporation sold a 10-year,$1,000,zero-interest bond when the market rate of interest was 7%.The present value of the principal is ________.

Question

Quizplus · Accepted Answer

To find the present value of the bond, we need to use the present value formula:

Present Value = Face Value / (1 + Market Interest Rate)^Number of Periods

In this case, the face value is $1,000, the market interest rate is 7%, and the number of periods is 10. Plugging those values into the formula, we get:

Present Value = $1,000 / (1 + 0.07)^10
Present Value = $1,000 / 1.96715
Present Value = $508.35

Therefore, the present value of the principal is $508.35, which is the closest choice to our calculation.

Stanton Corporation Sold a 10-Year,$1,000,zero-Interest Bond When the Market Rate