Question

Please help!!
Parker bought a 15-year treasury bond for a face amount of $400. The 3.5% interest will be compounded quarterly. What will the future value of Patrick's investment be when he goes to cash it in on maturity date 15 years from now?

Answer 1

$674.64
$3,151.24
$414.18
$670.14

Answer 2

use the formula

A = P(1+r/n)^(n*t)

in this case

P = 400
r = 0.035
n = 4
t = 15

Answer 3

Can you help me more

Answer 4

Hi! I dislike these math questions. The way I see it, economics is a practical use of math, but it's also confusing and sometimes boring.

So, do you know how bonds work?

Answer 5

I'm relying on http://www.wikihow.com/Calculate-an-Interest-Payment-on-a-Bond

Answer 6

No I don't

Answer 7

Here's a link I'm going to watch just to make sure I got it!

Answer 8

http://www.khanacademy.org/science/core-finance/stock-and-bonds/bonds-tutorial/v/relationship-between-bond-prices-and-interest-rates

Answer 9

Did that link help at all?

Answer 10

Ok can you go over this problem with me

Answer 11

Yeah, but first I want to make sure I understand the issue with bonds. That will be how we get to the answer, and I don't want to confuse you with incorrect information! :S

Answer 12

Ok

Answer 13

I'm not sure what it means by compounded... Does that mean put with the $400, and you get interest from the sum? I'm really not sure how bonds work, sorry! Do you have notes on this?

Answer 14

Why don't you just solve the equation Jim Thompson posted?

Answer 15

@Mertsj , can you verify that this equation is appropriate? I couldn't myself, and could not find it!

Answer 16

And then, would you be able to explain it at all? I would like to help others with this problem, but first I'd have to understand it myself!

Answer 17

\[A=A _{0}(1+\frac{r}{n})^{nt}\]

Answer 18

A is the final amount. A_0 is the beginning amount. r is the interest rate. n is the number of compounding periods per year. t is the number of years.

Answer 19

So, getting to that equation is probably, tough, huh? So, when these problems are assigned, is it expected that the student know this formula? And they don't need to be able to derive it?

Answer 20

And, @kenbaby , it looks like that's your answer! Two people have provided the same formula. I'm sorry I couldn't help!

Answer 21

I can't solve it that's the problem!!

Answer 22

Alright! So it looks like \(A_0\) is how much you know you will get. When you buy the bond, you buy it for a price, and then how much more you get is based off of that price. I know that much only. So \(A_0\) is the "face amount" the problem mentions.

Answer 23

Pretty much, you're going to take that equation, and put numbers in where they belong. You'll know where they belong because jim_thompson5910 and mertsj explained what variables (the letters) mean, which indicates which numbers we'll use there.

Answer 24

Do you know what you're doing with this one yet?

Answer 25

Nope

Answer 26

Are you used to working with variables at all?

Answer 27

When the problem says, "quarterly," it means four times a year. Meaning \(n=4\), I guess!

Answer 28

\[A=400(1+\frac{.035}{4})^{4(15)}\]

Answer 29

\[A=400(1.00875)^{60}\]

Answer 30

\[A=400(1.686602982)=674.64\]