You have two bonds,both with a face value of $7,000.One of them matures one year from today,while the other matures one year after that.If the interest rate is 8 percent (0.08)per year,what is the difference in value between the two bonds?

Question

Quizplus · Accepted Answer

The present value of the bond maturing in one year is $7,000 / (1 + 0.08) = $6,481.48. The present value of the bond maturing in two years is $7,000 / (1 + 0.08)^2 = $6,003.88. The difference in value between the two bonds is $6,481.48 - $6,003.88 = $477.60, which is closest to $480.11.

You Have Two Bonds,both with a Face Value of $7,000