Can you explain why the value at year 5 is $1400? Because according to the Time value of money, $80 earned each year in the previous years, is not worth the same value as in the final year. Please provide a clear explanation.

SOLUTION Question 1: Bonds Five years ago you purchased an 8% annual coupon bond for $975. Today you sold the bond for $1,000. What is your rate of return on the bond in each of the following situations: a) All coupons were immediately spent when received b) All coupons were reinvested in your bank account, which pays 1% interest until the bond is sold (assume interest is compounded annually) c) All coupons were reinvested at 8.64% until the bond is sold Solution: Annual coupon 81. - $80 Price at purchase $975 sell bond today - $1,000 (5 years ago) -4 (Today) (975) $80 $100 + $80 a) Coupons spent li.e. no returns on the $80 coupon value at Is $975 Value at Today - $400 + ($80x5) . $975 grows to : over sys . $975 (ltr)s - $1,400 - = 7.5067 b) Coupons reinvested at i fr g coupons cx fitrit [{1+r) - 1 ] = $ 80 % (1.00 0.01 - $408.08 using a financial calculator : M75 $ 80 n=5 Fu=? FV - $408.08