Question: Which are issued by a government to raise money. An individual who buys a $1000 bond gives the government $1000 and in return receives a fixed sum of money, called the coupon, every six months or every year for the life of the bond. At the time of the last coupon, the individual also gets back the $1000, or principal.
What is the present value of a $1000 bond which pays $50 a year for 10 years, starting one year from now? Assume the interest rate is 4% per year, compounded annually.