Question

Suppose some government bonds are paying 5.8% simple interest. How much should you invest in the bonds if you want them to be worth $5,000 in 9 years? Round your final answer to two decimal places.

Answer 1

The simple interest formula is given by:

`FV=PV(1+in)`

FV: future value

PV: present value

i: interest rate

n: interest periods

We have from the question:

FV: $5000

PV: ?

i: 5.8%

n: 9.

Then:

`5000=PV(1+(0.058\cdot9))`

Thus

`PV=(5000)/(1.522)\Rightarrow PV=3285.15`

Then, we should invest in $3285.15 to have $5000 in 9 years.