Calculating Present Value of a Bond

Consider a bond that will pay $1,000 in 5 years and has an annual coupon payment of $50. If the market interest rate is 6%, what is the present value of this bond using the discounted cash flow method?

To calculate the present value (PV), you need to discount each cash flow to the present value using the formula:

PV = C / (1 + r)^n + M / (1 + r)^N

Where:

• C = annual coupon payment
• r = market interest rate
• n = year of coupon payment
• M = maturity value of the bond
• N = total years until maturity