Question

a child's grandparents wish to purchase a bond that matures in 15 years.the bond pays an interest rate which is compounded semi-annually. if the bond's present value is $500,000 and it will be worth $1.2 million at maturity,
a. what is the annual interest rate?
b. if the bond company has a second option which offers an interest rate of 5% compounded continuously, which option should the grandparents choose?

Answer 1

@hartnn ? :D

Answer 2

@saifoo.khan ? @Hero ? @experimentX :D

Answer 3

@.Sam. ? :D @estudier ? :D

Answer 4

i'm confused on which m in A=P(1+r/m)^(mt) to use first?? since there's semi annually and annual?

Answer 5

find the value of m first. Find the amount at the end of year and calculate the annual interest rate.

Answer 6

compounded semi annually means money is compounded twice a year, so m = 2

Answer 7

A=P(1+r/m)^(mt)
Amount of money A which we will have at the end of t years if we invest an initial amount P at an annual rate r.
\[1.2\times 10^6=(5\times 10^5)(1+\frac{r}{2})^{(2(15))}\]
\[r \approx 0.0592245\]

Answer 8

OHHHH annual interest rate is merely r.... okay silly moment right there.... hahaha thanks!