Question

The abc company wishes to retire a $7,000,000 bond 10 years from now. what single deposit should they make in the bank today in order to retire the bond if they can earn 8% annually on its investment?

Answer 1

The future amount of a current investment which has compounding interest can be calculated through the equation,

F = P x (1 + i)^n

where F is the future amount, P is the present worth, i is the interest rate, and n is the number of years. Substituting the known values,

$7,000,000 = P x (1 + 0.08)^10

The value of P from the equation is $3,242,354.42

ANSWER: $3,242,354.42.