A one-year bond with a $10,000 original value offers a single fixed payment of $400 at the end of the year. You buy this bond for $8,000 on the bond market. The interest rate on your investment will be 4 percent.

Question

Quizplus · Accepted Answer

If the interest rate is 4 percent, the present value of receiving $400 in one year would be $384.62 ($400/(1+0.04)^1). Since you purchased the bond for $8,000 and its present value is $384.62, you would have received a significant discount, which is not likely in the bond market. Therefore, the statement is false.

A One-Year Bond with a $10,000 Original Value Offers a Single