Question

An investor buys a 20 year bond that has a value at maturity of $15,000. If the investment earns 5% compounded annually (once per year), how much does the investor have to put into the account at the start (to end up with the $15,000 at maturity)? (Remember-formula firstl).

Answer 1

To calculate the amount the investor needs to put into the account at the start, we can use the present value formula. Given the future value, interest rate, and number of compounding periods, we can calculate the present value to be $6,924.81.

Step-by-step explanation:

To calculate the amount the investor needs to put into the account at the start, we can use the formula for present value of a single sum:
`PV = FV / (1 + r)n`present value, FV is the future value, r is the interest rate, and n is the number of compounding periods.

Given that the future value is $15,000, the interest rate is 5%, and the investment is for 20 years, we can plug these values into the formula:

PV = 15000 / (1 + 0.05)20

Solving this equation gives us the answer:

PV = $6,924.81