How much is a bond worth today if it pays $50 in coupon payments for 3 years and $1,000 at the end of the third year, and the interest rate is 10%?

Question

Quizplus · Accepted Answer

The bond's present value is the sum of the present values of the coupon payments and the face value. The present value of each coupon payment is $50/(1+0.1)^n, where n is the number of years until the payment is received. The present value of the face value is $1,000/(1+0.1)^3. The total present value is $50/(1+0.1) + $50/(1+0.1)^2 + $50/(1+0.1)^3 + $1,000/(1+0.1)^3 = $876.

How Much Is a Bond Worth Today If It Pays