Finding present value of a bond

Apr 2009
83
0
What is the present value of a $1000 bond which pays $50 a year for 10 years, starting one year from now? Assume the interest rate is 6% per year, compounded annually.

Please show work and explain how to solve this problem. So far I have used the formulas B = P(1 + r)^n and P = B/(1+r)^n but to no avail. This problem is making me crazy trying to solve for the answer. The answer according to the back of the book is $926.40.

Your help is greatly appreciated. Thank you.
 
Dec 2007
3,184
558
Ottawa, Canada
HINT:
PV of $1000 = 558.39
PV of $50 payments = 368.01
558.39 + 368.01 = 926.40
 
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