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Chapter 5: Q. 51 (page 350)

A child鈥檚 grandparents wish to purchase a bond that matures in 18 years to be used for her college education. The bond pays 4% interest compounded semiannually. How much should they pay so that the bond will be worth $85,000 at maturity?

Short Answer

Expert verified

The amount to be paid for the bond to be worth $85000at maturity is :$41668.97

Step by step solution

01

Step 1. Given information  

A child鈥檚 grandparents wish to purchase a bond that matures in 18 years to be used for her college education. The bond pays 4% interest compounded semiannually.

02

Step 2. Required to find  

How much should they pay so that the bond will be worth $85,000 at maturity?

03

Step 3. Finding the amount to be paid for the bond to be worth $85000at maturity

Using the compound interest formula, A=P1+rnnt

Put A=85000,r=0.04,n=2,t=18

85000=P1+0.0422脳18

鈬�85000=P1+0.0236

鈬�85000=P1.0236

鈬�850001.0236=P

鈬�P=850002.0398

鈬�P=41668.97

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