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)   (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.
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