Score: 0 of 5 pts 1 of 6 (6 complete) Hw Score: 83.33%, 25 of 30 pts P3-9 (simil
ID: 1171977 • Letter: S
Question
Score: 0 of 5 pts 1 of 6 (6 complete) Hw Score: 83.33%, 25 of 30 pts P3-9 (similar to) Question Help Present value (with changing years). When they are first bom, Grandma gives each of her grandchildren a $5,000 savings bond that matures in 18 years. For each of the following grandchildren, what is the present value of each savings bonds if the current discount rate is 6%? a. Seth tuned sixteen years old today b. Shawn turned eleven years old today C. Sherry turned ten years old today d. Sheila turned four years old today e. Shane was just born. Sath just umed sixteen years old today and the current discount rate is 6%, what is the present value of his savings bond? 4,449.98 (Round to the nearest cent) b. Shawn just turned eleven years old today and the current discount rate is 6%, what is the present value of his savings bond? a. (Round to the nearest cent.)Explanation / Answer
Maturity value of bond = $5,000
Maturity period = 6 years
Current discount rate = 6%
$5,000 is the future value of bond after 18 years
Present value of the bond in year 0, can be calculated as under:
Present value in year 0 = Maturity value x PVF (6 %, 18 )
= 5,000 x 0.350
= $1,750
(a)
Present value of bond after 16 years = 1,750 x CVF ( 6%, 16)
= 1,750 x 2.540
= $4,445
(b)
Present value of bond after 11 years = 1,750 x CVF ( 6%, 11)
= 1,750 x 1.898
= $3,321.5
(c)
Present value of bond after 10 years = 1,750 x CVF ( 6%, 10)
= 1,750 x 1.791
= $3,134.25
(d)
Present value of bond after 4 years = 1,750 x CVF ( 6%, 4)
= 1,750 x 1.262
= $2,208.5
(e)
Present value in year 0 = Maturity value x PVF (6 %, 18 )
= 5,000 x 0.350
= $1,750
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