Answer: $651.60
Explanation:
From the question, we are informed that a State of California bond will pay $1,000 eight years from now and that the going interest rate on these 8-year bonds is 5.4%.
The worth of the bond today will then be:
FV = $1000
N = 8
I/Y = 5.4% = 0.054
We would use the formula:
= FV / (1+r)^(-N)
= $1000 / (1+0.054)^8
= $651.60
