Question

assume that all interest rates in the economy decline from 10% to 9%. which of the following bonds would have the largest percentage increase in price?

Answer 1

Answer:A = the future value of the investment ($7,500)

Explanation:P = the principal amount (what we're trying to find)

r = the annual interest rate (10% or 0.10)

n = the number of times the interest is compounded per year (assume once per year)

t = the time period (3 years)

Plugging in the values, we get:

$7,500 = P(1 + 0.10/1)^(1*3)

Simplifying, we get:

$7,500 = P(1.10)^3

$7,500 = P(1.331)

Dividing both sides by 1.331, we get:

P = $5,633.26

Therefore, you would need to deposit $5,633.26 today in your super savings account, earning 10% interest compounded annually, to accumulate $7,500 for a down payment on a new car in 3 years.