Question

You have decided to invest $1000 in a savings bond that pays 4% interest, compounded semi-annually. What will the bond be worth if you cash it in 10 years from now?
N= I/Y= PV= PMT= FV= P/Y=

Answer 1

Answer:

$2191.12

Step-by-step explanation:

We are asked to find the value of a bond after 10 years, if you invest $1000 in a savings bond that pays 4% interest, compounded semi-annually.

$FV=C_0\times (1+r)^n$, where,

$C_0=\text{Initial amount}$,

r = Rate of return in decimal form.

n = Number of periods.

Since interest is compounded semi-annually, so 'n' will be 2 times 10 that is 20.

$4\%=\frac{4}{100}=0.04$

$FV=\ 1,000\times (1+0.04)^{20}$

$FV=\ 1,000\times (1.04)^{20}$

$FV=\ 1,000\times 2.1911231430334194$

$FV=\ 2191.1231430334194$

$FV\approx \ 2191.12$

Therefore, the bond would be $2191.12 worth in 10 years.