Question

Suppose that on January 1, 2018, you buy a bond for $2,000 that will pay interest of 3.6% per year compounded continuously for 20 years. You never withdraw any of the interest earned on the bond. (a) What will the bond be worth on January 1, 2038?

Answer 1

Answer: $4108.87

Explanation:

Given : Present value :
`P= \$2,000`

The number of time period :
`t=20\text{ years}`

The rate of interest :
`r=3.6\%\ =0.036`

Let P be the present value of bond .

The formula to calculate the future value is given by :-

`FV=Pe^(rt)`

`\\\\\Rightarrow\ FV=2000e^(0.036*20)}\\\\\Rightarrow\ FV=4108.86642129\approx4108.87`

Hence, the future value of the bond on January 1, 2038 would be $4108.87 .