(This is called a zero-coupon or pure discount bond)
(That is one deposit of \$6,000$6,000 per year.)
How much money will you have immediately after you make your fourth and final deposit?
(Hint: Solve your future value formula for the discount rate, R)
If the discount rate is 3.5\%3.5% per annum, what is the current price of the bond?
(Hint: Recognize that this cash flow stream is an annuity and that the price of an asset is the present value of its future cash flows.)
If the discount rate is 3.5\%3.5% per annum, what is the current price of the bond?
(Hint: Recognize that this bond can be viewed as two cash flow streams: (1) a 10-year annuity with annual payments of \$1,000$1,000, and (2) a single cash flow of \$100,000$100,000 arriving 10 years from today. Apply the tools you’ve learned to value both cash flow streams separately and then add.)
(Hint: The \$431$431 billion is just the present value of these cash flows at a discount rate of 4\%4%.)
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