Asked by Kylie Scott on Jun 22, 2024
Verified
Use the following tables to calculate the present value of a $25,000, 7%, 5-year bond that pays $1,750 ($25,000 × 7%) interest annually, if the market rate of interest is 7%
Present Value of $1 at Compound Interest 
Present Value of Annuity of $1 at Compound Interest 
Present Value
The present valuation of a future financial sum or cash flow series, factoring in a specific return rate.
Compound Interest
Interest earned on both the initial principal and the accumulated interest from previous periods on a deposit or loan.
Bond
A financial instrument in which an investor loans money to an entity (corporate or governmental) that borrows the funds for a defined period at a specified interest rate.
- Understand the principles of bond valuation and the calculation of present value for single amounts and annuities.
Verified Answer
TF
Tyrese FranklinJun 27, 2024
Final Answer :
Present value of face value of $25,000 due in 5 years at 7%
compounded annually
$25,000 × 0.71299 (present value factor of $1 for 5 periods at 7%)
$17,825*
Present value of 5 annual interest payments of $1,750 at 7%
interest compounded annually
$1,750 × 4.10020 (present value of annuity of $1 for 5 periods at 7%) 7,175*
Total present value of bonds
$25,000*
*rounded
compounded annually
$25,000 × 0.71299 (present value factor of $1 for 5 periods at 7%)
$17,825*
Present value of 5 annual interest payments of $1,750 at 7%
interest compounded annually
$1,750 × 4.10020 (present value of annuity of $1 for 5 periods at 7%) 7,175*
Total present value of bonds
$25,000*
*rounded
Learning Objectives
- Understand the principles of bond valuation and the calculation of present value for single amounts and annuities.