Posted by Untamed on Wednesday, September 21, 2011 at 8:58pm.
I keep getting confused on this stuff.
Alan invests $2500 in a 5 year Government bond paying interest at 3.7% per annum compounded annually. Calculate the value of the bond at maturity (after 5 yrs)
Tn = 2500(0.037)^51
= 2500(0.037)^4
= 2500(1.8741*10^6)
I know the third step is wrong, but I keep getting to the power of.

Calculus  Reiny, Wednesday, September 21, 2011 at 9:08pm
your growth factor is 1.037 , not .037
remember: 100% + 3.7% = 1 + .037 = 1.037
2500(1.037)^5 = 2998.01
now = 2500
after year 1 = 2500(1.037)
after year 2 = 2500(1.037)^2
..
after year 5 = 2500(1.037)^5
Don't just rely on "formulas", often it is better to see the pattern and continue in that pattern
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