Suppose you recently paid $1000 for a new 30-year bond issued by the telecommunications company, Verizon. The coupon rate is 6 percent, and for the sake of simplicity, let's assume that the $60 is paid once a year at the end of the year. Given the 6 percent interest rate, the present value of the bond's face value of $1000 paid thirty years from now is approximately $175. What is the present value of the stream of thirty, annual $60 payments? You can calculate the answer easily enough, but there is a shortcut.
Answers:
- $1,100
- $825
- $700
- $350
- $140