value. Conversely, if the interest rate rises after a bond is issued, then the investor is locked into a lower rate,

and the bond will sell for less than its face value. The present value calculation sharpens this intuition.

Think about a simple two-year bond. It was issued for $3,000 at an interest rate of 8%. Thus, after the first year,
the bond pays interest of 240 (which is 3,000 × 8%). At the end of the second year, the bond pays $240 in

interest, plus the $3,000 in principle. Calculate how much this bond is worth in the present if the discount rate

is 8%. Then, recalculate if interest rates rise and the applicable discount rate is 11%. To carry out these

calculations, look at the stream of payments being received from the bond in the future and figure out what

they are worth in present discounted value terms. The calculations applying the present value formula are

shown in Table C2.

Stream of Payments (for

Present Value (for the

Stream of Payments (for
{"producer": "Prince 14.2 (www.princexml.com)", "creator": "PDFMiner", "moddate": "2022-12-07T14:23:05-06:00", "file_name": "Microeconomics3e.pdf", "source_file": "downloads\\business\\economics\\Microeconomics3e.pdf", "upload_timestamp": "2026-02-07T15:24:38.309401", "creationdate": "2022-12-07T14:15:44-06:00", "total_pages": 597, "source": "downloads\\business\\economics\\Microeconomics3e.pdf", "file_size_mb": 26.99, "file_hash": "830b81f41611ac67a490444dbb5d6aed292224606965b06965b914443c93331a", "batch_upload": true, "file_type": ".pdf", "title": "Principles of Microeconomics 3e", "uploaded_via": "batch_uploader"}