What is the present value of a 10-year, pure discount bond that pays
$1,000 at maturity and
is priced to yield the following rates?
a. 5 percent
b. 10 percent
c. 15 percent

pbc141 --

The answer for 5 percent is $613.91

The answer for 10 percent is $385.54

The answer for 15 percent is $247.19



The exact problem you have posed is solved on this linked page from
economics text material on the website at the University of California
at Santa Barbara (The superscripted "10" in formula refers to the
number of years until maturity):

University of California at Santa Barbara: Chapter 5: How to Value Bonds and Stocks
http://www.econ.ucsb.edu/~sparendo/134a/ch5.pdf


You can confirm the answer and probably get more familiar with the
relevant formula with this linked mortgage/bond calculator:

Econmodel: Mortgage/Bond Calculator
http://www.econmodel.com/classic/calculators/pv1.php


To get your answer for each of your interest rates, do the following:

1.  Insert the interest rate ("5", for example) in the box labeled "R"

2.  Insert "10" in the box labeled "N" (which refers in this case to
the "Number" of years until maturity:

3.  Insert "1000" in the box labeled "B"

4.  Leave the "A" box empty and click on "PV" (for "Present Value")



Search Strategy:


The following Google search was the most useful in finding these two
information sources:

"pure discount" bond "present value"
://www.google.com/search?hl=en&lr=&rls=GGLB%2CGGLB%3A1969-53%2CGGLB%3Aen&q=%22pure+discount%22+bond+%22present+value%22


I am confident that these are the answers you are looking for.  If
anything is unclear or if you have any problem with the links, please
ask for clarification before rating the answer.


markj-ga