Question

Assume you invest money in a bond that will pay you $250,000 in four years. the bond has an annual interest rate of 5%. you do not receive interest payments while you own the bond; it is zero-coupon. what is the bond's present value?

Answer 1

The formula of the present value of the bond is

Pv=Fv÷(1+r)^t
Fv 250000
R 0.05
T 4 years

Pv=250,000÷(1+0.05)^(4)
Pv=205,675.6 round your answer to get 205676