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19 May, 18:09

Suppose a U. S. Government bond will pay $1,000 three years from now. If the going interest rate on 3-year government bondsis 4%, how much isthe bond worth today?

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  1. 19 May, 19:03
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    Answer: $1120

    Explanation:

    I = PxRxT/100

    = 1000 x 4 x 3 / 100

    = $120

    Yearly the bond gave a dividend of $40 which makes it $120 after 3years.

    Present value of the bond

    = $1000 + $120

    = $1120
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