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5 September, 07:26

Paul bought a 15-year treasury bond for a face amount of $600. The 2.5% interest will be compounded quarterly. What will the future value of Patrick's investment be when he goes to cash it in on the maturity date 15 years from now?

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  1. 5 September, 07:34
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    First, we convert the interest such that it is compounded annually. The formula would be:

    ieff = (1 + i/m) ^m - 1

    where m = 4, since there are 4 quarters in a year

    ieff = (1 + 0.025/4) ^4 - 1

    ieff = 0.0252

    Then we use this for this equation:

    F = P (1 + i) ^n, where F is the future worth, P is the present worth and n is the number of years

    F = $600 (1 + 0.0252) ^15

    F = $871.53
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