A bond promises to pay $500 in one year and $10,500 in two years. What is the correct way to find the present value of this bond? A)$500(1 + r) + $10,500/(1 + r)² B)$500/(1 + r) + $10,500/(1 + r)² C)$11,000/(1 + r)² D)$500(1 + r) + $10,500(1 + r)²

Question

Quizplus · Accepted Answer

The correct way to find the present value of this bond is to discount each future payment by the interest rate (r) for the period until it is received. This is represented by the formula $500/(1 + r) for the payment in one year and $10,500/(1 + r)^2 for the payment in two years, which matches option B.

A Bond Promises to Pay $500 in One Year and $10,500