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SOLUTION TO FINANCE PROBLEM
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2324-2-8P AID: 8873 | 01/09/2015
Value of a bond is the sum of present value of its future coupon payments and the present value of its value at maturity.
B 0=∑t=i
n C A
(1+r )t+Bt
(1+r )t
But, Treasury bills are issued at discount and redeemed at par. They are short-term securities with maturities less than a year. They do not usually carry any coupon. Therefore, its value is simply the present value of its face value which is to be received in the future.
B0=$1000
(1+0 .02 )1 = $980 .39