Respuesta :
Option a. $508.36 is the correct answer. The bond is worth $508.36 today
Given a certain rate of return, present value (PV) is the current value of a future financial asset or stream of cash flows. A discount rate or the interest rate that could be obtained through investment is applied to the future value to get the present value. The difference between present value and future value is that the former tells you how much money you'd need in today's dollars to earn a certain amount in the future.
We have
Value of the bond after 10 years (Future Value - FV) $1000
Number of years 10
Going rate 7%
We need to discount the FV of the bond by the discount factor at 7% for 10 years to arrive at the bond's price today.
[tex]PV = \frac{FV}{(1+r)^n}\\ PV = 1000/(1.07)^10\\PV = 508.36[/tex]
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