Question

A state savings bond can be converted to $100 at maturity six years from purchase. If the state bonds pay 8% annual interest (compounded annually), at what price must the state sell its bonds? Assume no cash payments on savings bonds before redemption.

Answer 1

Answer:

price of the maturity at the time of sell will be $63.01

Explanation:

We have given maturity after six year of the purchase = $100

Annual interest r = 8%

Time period n = 6

We have to find the the amount of sell of the bond P

We know that future value is given as $A=P(1+\frac{r}{100})^n$, here A is the price of maturity after 6 year P is price if maturity at the time of sell r is rate of interest and n is time period

So $100=P(1+\frac{8}{100})^6$

P = $63.01

So price of the maturity at the time of sell will be $63.01