You are considering a savings bond that will pay 100 in 9 ye

You are considering a savings bond that will pay $100 in 9 years. If the interest rate is 16%, what should you pay today for the bond The amount that you should pay today for the bond is S(Round to the nearest cent)

Solution

Present Value = Future Value / [1+ Interest rate]^Number of years

Future Value= $100

Interest rate=0.016

Number of years =9

Present Value = 100 / [1+0.016]^9

= 100 / [1.016]^9

=100/1.153568 = $86.69