1. What is the present value of $500.00 to be paid in two years if the annual interest rate is 5%? $___ 2. The current interest rate on a 10-year treasury note (with face value = $100 and annual coupon rate = 2.625%) is 3.37%. The buyer of this note will receive $ ____ payment from the treasury every year before maturity while holding the bond.
1. What is the present value of $500.00 to be paid in two years if the annual interest rate is 5%? $___
2. The current interest rate on a 10-year treasury note (with face value = $100 and annual coupon rate = 2.625%) is 3.37%. The buyer of this note will receive $ ____ payment from the treasury every year before maturity while holding the bond.
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The present value (PV) is a concept based on the fact the present worth of a given amount is less than than its value in the nearer or distant future. For example, 100 dollars has a higher worth today than that of future. The present value can be computed by the below expression:
Here:
"r" is the prevailing market interest rate ,
"FV" is the future cash flow, and
"n" is the time period of payment.
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