Bonds: It is a type of promise or contract to pay in the future with certain limitations and conditions specified at the time of issuing the bond. The present value of Amount: It is the quantity of money which is needed in the present time in order to gain an amount at the upcoming date at a specific interest rate. The formula to calculate present value is, Here, PV is the present value of amount. X is the future amount. n is the number of years. i is the interest rate. Stock Price and Interest Rate: Stock Price and the interest rate are inversely related to each other. If the interest rate of the bonds decrease then the stock price increases.

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Chapter 10.A, Problem 1P

To determine

Concept Introduction:

Bonds: It is a type of promise or contract to pay in the future with certain limitations and conditions specified at the time of issuing the bond.

The present value of Amount: It is the quantity of money which is needed in the present time in order to gain an amount at the upcoming date at a specific interest rate.

The formula to calculate present value is,

Here,
PV is the present value of amount.

X is the future amount.

n is the number of years.

i is the interest rate.

Stock Price and Interest Rate: Stock Price and the interest rate are inversely related to each other. If the interest rate of the bonds decrease then the stock price increases.

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