Question

Suppose a State of Nevada bond will pay $1,000 eight years from now. If the going interest rate on these 8-year bonds is 5.5%, how much is the bond worth today

Answer 1

$651.60

Step-by-step explanation:

the worth of the bond today can be determined by calculating the present value of the bond's cash flow

Present value is the sum of discounted cash flows

Present value = cash flow / (1 + r)^n

r = interest rate

n = years

1000 / ( 1.055)^8 = $651.60