alex purchased a bond that will pay him $100,000 in five years. if the interest rate is 6% annually, what is…

alex purchased a bond that will pay him $100,000 in five years. if the interest rate is 6% annually, what is it worth today? (or at what price alex should pay to buy this bond today?)\n(keep 2 decimal places)\ntype your answer here

alex purchased a bond that will pay him $100,000 in five years. if the interest rate is 6% annually, what is it worth today? (or at what price alex should pay to buy this bond today?)\n(keep 2 decimal places)\ntype your answer here

Answer

Explanation:

Step1: Identify the present - value formula

The present - value formula for a single future cash - flow is $PV=\frac{FV}{(1 + r)^n}$, where $PV$ is the present value, $FV$ is the future value, $r$ is the interest rate per period, and $n$ is the number of periods.

Step2: Substitute the given values

We are given that $FV = 100000$, $r=0.06$, and $n = 5$. $PV=\frac{100000}{(1 + 0.06)^5}$

Step3: Calculate the value

First, calculate $(1 + 0.06)^5=1.06^5=1.3382255776$. Then, $PV=\frac{100000}{1.3382255776}\approx74725.82$.

Answer:

$74725.82$