Suppose a State of California bond will pay $1,000 eight years from now.If the going interest rate on these 8-year bonds is 6.2%,how much is the bond worth today?

Question

Quizplus · Accepted Answer

We can use the present value formula to calculate the value of the bond today:
PV = FV / (1 + r)^n
where PV is the present value, FV is the future value, r is the interest rate and n is the number of years.

In this case, FV = $1,000, r = 6.2%, and n = 8. Plugging these values into the formula, we get:

PV = $1,000 / (1 + 0.062)^8
PV = $1,000 / 1.627
PV = $614.49

Therefore, the bond is worth $614.49 today. The closest option is C) $618.02, so that is the answer.

Suppose a State of California Bond Will Pay $1,000 Eight