Question

#12 Suppose Bob is a 9th grade student. Bob's Mom plans to buy him a VA529 education bondof $50,000 education bond for his college education. If the discount rate is 6%, compounded semi-annually, what price should Bob's Mom pay now (current price)? (Hint: there are 4 years from 9thgrade to college.)

Answer 1

For solving this exercise, we will use the formula of the Present or Current value, as follows:

`PV\text{ = FV }\ast\text{ }\lbrack(1)/(\square)(1+i)^n\rbrack`

Where:

PV = Present or Current Value

FV = Future Value

i = Interest or discount rate

n = Periods of time

Replacing with the values we know:

`PV\text{ = 50,000 }\ast\text{ }\lbrack\text{ 1 }(\square)/(\square)\text{ }(1+0.03)^8\rbrack`

PV = 50,000 * 0.7894

PV = 39,470

Bob's Mom