Suppose a Government of Canada bond promises to pay $1,000 five years from now

Finance Dec 27, 2020

Suppose a Government of Canada bond promises to pay $1,000 five years from now. If the going interest rate on 5- year government bonds is 5.5%, how much is the bond worth today?

Expert Solution

Value of Govt Bond = Face Value / (1+r)^n

r = 0.055

n = 5 years

= 1000 / (1+0.055)^5

= 765.13

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