Determine the Present Value of $5,000 to Be Received 4

question 5

Multiple Choice

Determine the present value of $5,000 to be received 4 years from now at the continuously discounted rate of 8 percent.

• A) $6,886
• B) $3,631
• C) $4,616
• D) None of the above

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Definitions:

Duration

A measure of the sensitivity of the price of a bond or other debt instrument to changes in interest rates, often used to estimate the price's volatility.

Coupon Bond

A type of bond that pays the holder a fixed interest rate (coupon) periodically until the maturity date, at which point the principal amount is paid back.

Horizon Analysis

Forecasting the realized compound yield over various holding periods or investment horizons.

Yield Curve

A graphical representation showing the relationship between the interest rates of bonds of the same credit quality but different maturities.