Question

You have decided to invest $1000 in a savings bond that pays 4% interest, compounded semi-annually. What will the bond be worth if you cash it in 10 years from now?

N= I/Y= PV= PMT= FV= P/Y=

Answer 1

$2191.12

Explanation:

We are asked to find the value of a bond after 10 years, if you invest $1000 in a savings bond that pays 4% interest, compounded semi-annually.

`FV=C_0* (1+r)^n`, where,

`C_0=\text{Initial amount}`,

r = Rate of return in decimal form.

n = Number of periods.

Since interest is compounded semi-annually, so 'n' will be 2 times 10 that is 20.

`4\%=(4)/(100)=0.04`

`FV=\$1,000* (1+0.04)^(20)`

`FV=\$1,000* (1.04)^(20)`

`FV=\$1,000* 2.1911231430334194`

`FV=\$2191.1231430334194`

`FV\approx \$2191.12`

Therefore, the bond would be $2191.12 worth in 10 years.