Suppose a U. S. treasury bond will pay $2,500 five years from now. If the going interest rate on 5-year treasury bonds is 4.25%, how much is the bond worth today

Worth of the Bond today = $2,030.3

Explanation:

The worth the bond today is the present value of the expected future lump sum cash receivable in year 5 discounted at the going interest rate of 4.25%.

The formula below would be of help to resolve this ;

PV = FV× (1+r)^(-n)

PV- Present Value/Worth of the Bonds- ?

FV- Future value i.e expected cash receivable- 2,500

r- discount rate - 4.25%

n- maturity period of the bond- 5

PV = 2,500 × (1+0.0425)^(-5)

PV = 2,030.29

Worth of the Bond today = $2,030.3

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