Question

What is the present value of $2000 paid in three years if the interest rate is 2 percent?

Select one:

a. a. $666.66

b. b. $1884.60

c. c. $1946.70

d. d. $2040.30

If a bond's maturity is 2 years, with an annual coupon payment of $10.00 and the face value is $100, and assuming the interest rate is 5 percent, which of the following is the bond's price?

Select one:

a. a. 95.24

b. b. 99.77

c. c. 109.30

d. d. 114.29

Answer 1

1.

Present Value of $2000 in 3 years with 2% interest rate = 2000/(1+0.02)³

Present Value = $1884.60

Option B is correct.

2.

Maturity = 2 years

Coupon = 10%

Par value = $00

Interest Rate = 5%

$PV of Bond = \sum_{t=1}^{t} C_{t}/(1+r)^t + Par Value/(1+r)^t$

Present Value of Bond = $109.3