Question:
An investor purchases a 10-year, $1,000 par value bond that pays annual interest of $100. If the market
rate of interest is 12 percent, what is the current market value of the bond?
a. $887
b. $950
c. $1,000
d. $1,100
Answer:
a. PVA = $100 x 5.65022 = $565 (present value of the interest payments)
PV = $1,000 x 0.32197 = $322 (present value of the face amount)
Total present value = $887 = current market value of the bond
An investor purchases a 10-year, $1,000 par value bond that pays annual interest of $100. If the market
rate of interest is 12 percent, what is the current market value of the bond?
a. $887
b. $950
c. $1,000
d. $1,100
Answer:
a. PVA = $100 x 5.65022 = $565 (present value of the interest payments)
PV = $1,000 x 0.32197 = $322 (present value of the face amount)
Total present value = $887 = current market value of the bond
