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4 years ago

A bond that appreciates 4% per year will be worth $146 in five years. find the current value.

Mathematics

1 answer:

Anastasy [175]4 years ago

4 0

Answer:

$120

Step-by-step explanation:

Let the initial value of bond be $X

The future value of any bond is calculated by formula

FV= PV(1+r)^n

where

FV is future value of bond
PV is present value of bond
r is the rate that at which value of bond appreciate
n is the number of years of maturity

In the problem given

FV= $146

r = 4% = 0.04 (dividing 4 by 100 we get 0.04)

n = 5

substituting these value in formula

$146 = X(1+0.04)^5\\=> X = 146/1.04^5\\=> X = 120$

PV =$X = $120

Hence current value of bond is $120.

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