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Calculus

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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)^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 - ,

    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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