SOLUTION: A savings bond will pay $5,000 at maturity 15 years from now. How much should you be willing to pay for the note now if money is worth 4.11% compounded semiannually?

Algebra ->  Logarithm Solvers, Trainers and Word Problems -> SOLUTION: A savings bond will pay $5,000 at maturity 15 years from now. How much should you be willing to pay for the note now if money is worth 4.11% compounded semiannually?      Log On


   

Question 383497: A savings bond will pay $5,000 at maturity 15 years from now. How much should you be willing to pay for
the note now if money is worth 4.11% compounded semiannually?
Answer by Theo(13342) About Me  (Show Source):
You can put this solution on YOUR website!
will pay $5000 in 15 years.
interest rate per year is 4.11% compounded semiannual.

formula to use is f = p * (1+i)^n

your time periods need to be semi-years.

because of that, you need to divide your interest rate by 2 and you need to multiply your years by 2.

in your formula:

f = 5000
p = what you want to find
i = .0411 / 2 = .02055
n = 15 * 2 = 30

your formula becomes:

5000 = p * (1.02055)^30

your answer should be that you are willing to pay $2,716.072716 for the savings bond.

Let's see if that works.

1.02055^30 = 1.840893276

your formula becomes 5000 = p * 1.840893276

divide both sides of this equation by 1.840893276 and you get:

p = 5000 / 1.840893276 = $2,716.072716

We're good.