Question

Suppose that on January 1, 2018, you buy a bond for $2,000 that will pay interest of 3.6% per year compounded continuously for 20 years. You never withdraw any of the interest earned on the bond. (a) What will the bond be worth on January 1, 2038?

Answer 1

Answer: $4108.87

Step-by-step explanation:

Given : Present value : $P= \ 2,000$

The number of time period : $t=20\text{ years}$

The rate of interest : $r=3.6\%\ =0.036$

Let P be the present value of bond .

The formula to calculate the future value is given by :-

$FV=Pe^{rt}$

$\\\\\Rightarrow\ FV=2000e^{0.036\times20}}\\\\\Rightarrow\ FV=4108.86642129\approx4108.87$

Hence, the future value of the bond on January 1, 2038 would be $4108.87 .