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
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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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