SOLUTION: Tri-Star Airlines intends to pay off a $20,000,000 bond issue that comes due in 4 years. How much must the company set aside now, at 6 % interest compounded quarterly, to accumulat

Question 1116948: Tri-Star Airlines intends to pay off a $20,000,000 bond issue that comes due in 4 years. How much must the company set aside now, at 6 % interest compounded quarterly, to accumulate the required amount of money?

Answer by addingup(3677) (Show Source): You can put this solution on YOUR website!
Calculate the Present Value of 20,000,000
Time: 4 years compounded quarterly = 4*4 = 16
Interest: 6% compounded quarterly = 0.015
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
PV = 20,000,000(1+0.015)^-16
PV = 20,000,000(1.015)^-16
PV = 20,000,000(0.788) = 15,760,000
Refresher:
negative exponent rule: negative exponents in the numerator get moved to the denominator and become positive exponents.
So, 1.015^-16 is the same as 1/(1.015)^16

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