Imagine there are 3 periods, t=0,1,2 (with t=0 being today). A bond pays $100 in period 1 and $120 in period 2. The interest rate from period 0 to 1 is 10% and the interest rate from period 1 to period 2 is 5%.

1. What is the value of the bond in period 0 dollars (present value)?

2. What is the value of the bond in period 2 dollars (a future value)?

3. What is the value of the

Community Answer

【General guidance】The answer provided below has been developed in a clear step by step manner.Step1/21. P.V of bond = P.V of int. + P.V of M.V ( Interest x PVIFA) + ( M.V. x PVIF) assume 7% for 3yrs) ( assume 7% for 3yrs) (We will use the formula R/100+ 1, in order to find out the PVIFA ,means 7/100+ 1 ) For 3 yrs, do the addition of all the three values and write the grand total value in PVIFAAnd write the last value before grand total in PVIF. ( 10 x ... See the full answer