Problem:
Twenty years ago, a relative bought you a zero bond that matured at $1000 today. Zeroes pay no periodic interest and is calculated using the lump sum PV or FV formula. The stated interest rate during the 20-year period was 2.32% and inflation averaged 2.81%.
Required:
Question 1: Based on the purchase price, what is is the real present value of the bond, from the perspective of 20-years ago? In other words, if you knew what you know now, what would have been the FV of the bond? Explain in detail and provide all workings out.