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 Subject: FInance Category: Business and Money Asked by: lola5-ga List Price: \$10.00 Posted: 10 Apr 2005 14:54 PDT Expires: 10 May 2005 14:54 PDT Question ID: 507554
 ```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```
 ```Lola5 ? A zero-coupon bond like this sells at the present value (PV) of \$1000 after 10 years. Present values are calculated by dividing the compounded interest. Thus after one year at 5% interest it is: Value / (1.05) After two years: Value / (1.05)* (1.05) which can also be expressed as Value / (1.05)^2 After 10 years: Value / (1.05)^10 , where the ^ represents the power or exponent You can figure it on a calculator easily enough. But an Excel spreadsheet can show you the present value of all 3 interest rates at any point in the 10-year cycle. I?ve posted one here and it should be easily readable in your browser, even if you don?t have the Microsoft spreadsheet: PV of \$1000 in 10 years http://www.mooneyevents.com/pv1000.xls So, the correct amounts are: A. \$1000 / (1.05)^10 = \$613.91 B. \$1000 / (1.10)^10 = \$385.54 C. \$1000/ (1.15)^10 = \$247.18 Google search strategy: ?present value? + ?zero coupon? bond Best regards, Omnivorous-GA```