Suppose an Exxon Corporation bond will pay $1,000 ten years from now. If the going interest rate on safe 10-year bonds is 7.00%, how much is the bond worth today? Oa. $543.93 Ob. $483.98 O c. $502.57 O d. $475.09 O e. $508.35
Suppose an Exxon Corporation bond will pay $1,000 ten years from now. If the going interest rate on safe 10-year bonds is 7.00%, how much is the bond worth today? Oa. $543.93 Ob. $483.98 O c. $502.57 O d. $475.09 O e. $508.35
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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![**Present Value Bond Calculation Problem**
*Suppose an Exxon Corporation bond will pay $1,000 ten years from now. If the going interest rate on safe 10-year bonds is 7.00%, how much is the bond worth today?*
- a. $543.93
- b. $483.98
- c. $502.57
- d. $475.09
- e. $508.35
In this problem, you are tasked with determining the present value of a bond. The bond will mature in ten years, providing a future value of $1,000. The interest rate on similar bonds is 7.00%. To find the present value, use the formula for calculating the present value of a future sum:
\[ PV = \frac{FV}{(1 + r)^n} \]
Where:
- \( PV \) is the present value
- \( FV \) is the future value ($1,000)
- \( r \) is the interest rate (7% or 0.07)
- \( n \) is the number of periods (10 years)
Solve this equation to determine which of the options a-e is the correct present value of the bond.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F8d494b17-8b36-49e0-a6a1-3408f9cee0a7%2F571d6aaf-2240-4b67-9787-245af011a98e%2Fxvektrk_processed.png&w=3840&q=75)
Transcribed Image Text:**Present Value Bond Calculation Problem**
*Suppose an Exxon Corporation bond will pay $1,000 ten years from now. If the going interest rate on safe 10-year bonds is 7.00%, how much is the bond worth today?*
- a. $543.93
- b. $483.98
- c. $502.57
- d. $475.09
- e. $508.35
In this problem, you are tasked with determining the present value of a bond. The bond will mature in ten years, providing a future value of $1,000. The interest rate on similar bonds is 7.00%. To find the present value, use the formula for calculating the present value of a future sum:
\[ PV = \frac{FV}{(1 + r)^n} \]
Where:
- \( PV \) is the present value
- \( FV \) is the future value ($1,000)
- \( r \) is the interest rate (7% or 0.07)
- \( n \) is the number of periods (10 years)
Solve this equation to determine which of the options a-e is the correct present value of the bond.
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