Question

You are considering investing in a saving bond that will pay $15,000 in 10 years. If the competitive market interest rate is fixed at 6% per year, what

Answer 1

Answer: $8,376 rounded to the nearest dollar.

Step-by-step explanation:

The value in 10 years will be $15,000.

The value today will be the present value discounted at 6%;

= 15,000 / ( 1 + 6%) ^ 10

= 8,375.92

= $8,376 rounded to the nearest dollar

Answer 2

$9,375

Step-by-step explanation:

We are to calculate what the bond rate is now.

Using the simple interest formula:

Simple interest = Principal × Rate ×Time/100

Given

Amount = $15000

Time = 10years

Rate = 6%

Required

Amount invested (principal)

SI = PRT/100

Also SI = Amount - Principal

SI = A-P

The formula becomes

A-P = PRT/100

Substitute the given value.

15,000- P = P(6)(10)/100

15000-P = 6P/10

15000-P = 0.6P

15000 = 0.6P+P

15000 = 1.6P

Divide both sides by 1.6

15000/1.6 = 1.6P/1.6

9,375 = P

Principal = $9,375

This means that the amount invested in the savings bond is $9,375