Question

Kevin wants to buy a bond that will mature to 5500 in seven years. How much should he pay for the bond now if it earns interest at a rate of 2% per year, compounded continuously? Do not round any intermediate computations, and round your answer to the nearest cent.

Answer 1

Answer:2300

Step-by-step explanation:

Answer 2

Ans. He should pay $4,781.47 for this bond.

Step-by-step explanation:

Hi, all we have to do is to bring to present value $5,500 at 2% per year compounded continuously, from year 7.

We have to use the following formula.

`PresentValue=(FutureValue)/(e^(rt) )`

Where:

r = the compounded continuusly compounded rate

t = time to its maturity

It should look like this.

`PresentValue=(5,500)/(e^(0.02*7) )=4,781.47`

So, the fair price to pay for this bond is $4,781.47

Best of luck.