Question

Assume that a bond makes 30 equal annual payments of \$1,000$1,000 starting one year from today. (This security is sometimes referred to as an amortizing bond.) If the discount rate is 3.5\%3.5% per annum, what is the current price of the bond? (Hint: Recognize that this cash flow stream is an annuity and that the price of an asset is the present value of its future cash flows.)

Answer 1

Answer:

Explanation:

a bond makes 30 equal annual payments of $1,000 starting one year from today.

The discount rate is 3.5% per annum, what is the current price of the bond.

Present value of a bond = Annual payments x [1 - (1+i)⁻ⁿ] / i

$1000 x [ 1 - (1.035)-30] / 0.035

= $18,392.04

So, the present value is $18,392.04.