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Chapter 4: Q.15 (page 134)

Calculate the present value of a $1,300 discount bond with seven years to maturity if the yield to maturity is 8%.

Short Answer

Expert verified

The present value of bond is $758.53

Step by step solution

01

Step 1. Introduction

A bond's present value is determined by discounting future cash payments by the current market interest rate.

02

Step 2. Explanation

The present value of bond is calculated as:

PV=FV(1+r)^n=1300(1+0.08)^7=758.53

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