Your rich uncle albert gives you a savings bond that pays $500 four years from now. if the relevant interest rate for you is 2%, what is the present value of the bond?
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We need to calculate the present value of a bond worth $500. Let V denote the present value factor This equals:V=1/1+i
But i=0.02 therefore V=1/1.02=0.98039
The formulae for getting the present value is CV where C represents the accumulated amount. Therefore the present value=500*0.98039=490.20
The present value is 490.20
But i=0.02 therefore V=1/1.02=0.98039
The formulae for getting the present value is CV where C represents the accumulated amount. Therefore the present value=500*0.98039=490.20
The present value is 490.20
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