Suppose an Exxon Corporation bond will pay $4,500 ten years from now.If the going interest rate on safe 10-year bonds is 5.60%,how much is the bond worth today?

Question

Quizplus · Accepted Answer

To calculate the present value of the bond, we need to use the present value formula:
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 = $4,500, r = 5.60%, and n = 10. Plugging these values into the formula, we get:
PV = $4,500/(1 + 0.056)^10
PV = $2,609.60

Therefore, the bond is worth $2,609.60 today. Choice B is the correct answer.

Suppose an Exxon Corporation Bond Will Pay $4,500 Ten Years