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April 17, 2014

April 17, 2014

Posted by **-Untamed-** on Wednesday, September 21, 2011 at 8:58pm.

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)^5-1

= 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 9:08pmyour 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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