Future value Grand Opening Bank is offering a one-time investment opportunity fo
ID: 2338267 • Letter: F
Question
Future value Grand Opening Bank is offering a one-time investment opportunity for its new customers. A customer opening a new checking account can buy a special savings bond for $100 today, which the bank will compound at 7.5% for the next twenty years. You must hold the savings bond for at least five years, but can then cash it in at the end of any year starting with year five. What is the value of the bond at each cash-in date up through year twenty? (Use an Excel spreadsheet to solve this problem)Explanation / Answer
Schedule of returns on Bond
Year
Opening Value of Bond
Interest earned @7.5%
Ending value of bond
1
$ 100.00
$ 7.50*
$ 107.50**
2
$ 107.50
$ 8.06
$ 115.56
3
$ 115.56
$ 8.67
$ 124.23
4
$ 124.23
$ 9.32
$ 133.55
5
$ 133.55
$ 10.02
$ 143.56
6
$ 143.56
$ 10.77
$ 154.33
7
$ 154.33
$ 11.57
$ 165.90
8
$ 165.90
$ 12.44
$ 178.35
9
$ 178.35
$ 13.38
$ 191.72
10
$ 191.72
$ 14.38
$ 206.10
11
$ 206.10
$ 15.46
$ 221.56
12
$ 221.56
$ 16.62
$ 238.18
13
$ 238.18
$ 17.86
$ 256.04
14
$ 256.04
$ 19.20
$ 275.24
15
$ 275.24
$ 20.64
$ 295.89
16
$ 295.89
$ 22.19
$ 318.08
17
$ 318.08
$ 23.86
$ 341.94
18
$ 341.94
$ 25.65
$ 367.58
19
$ 367.58
$ 27.57
$ 395.15
20
$ 395.15
$ 29.64
$ 424.79
*$100x7.5%=$7.50 and so on
**$100+7.5=$107.5 and so on
End of year
Value of Bond at each cash in date
5
$ 143.56
6
$ 154.33
7
$ 165.90
8
$ 178.35
9
$ 191.72
10
$ 206.10
11
$ 221.56
12
$ 238.18
13
$ 256.04
14
$ 275.24
15
$ 295.89
16
$ 318.08
17
$ 341.94
18
$ 367.58
19
$ 395.15
20
$ 424.79
Schedule of returns on Bond
Year
Opening Value of Bond
Interest earned @7.5%
Ending value of bond
1
$ 100.00
$ 7.50*
$ 107.50**
2
$ 107.50
$ 8.06
$ 115.56
3
$ 115.56
$ 8.67
$ 124.23
4
$ 124.23
$ 9.32
$ 133.55
5
$ 133.55
$ 10.02
$ 143.56
6
$ 143.56
$ 10.77
$ 154.33
7
$ 154.33
$ 11.57
$ 165.90
8
$ 165.90
$ 12.44
$ 178.35
9
$ 178.35
$ 13.38
$ 191.72
10
$ 191.72
$ 14.38
$ 206.10
11
$ 206.10
$ 15.46
$ 221.56
12
$ 221.56
$ 16.62
$ 238.18
13
$ 238.18
$ 17.86
$ 256.04
14
$ 256.04
$ 19.20
$ 275.24
15
$ 275.24
$ 20.64
$ 295.89
16
$ 295.89
$ 22.19
$ 318.08
17
$ 318.08
$ 23.86
$ 341.94
18
$ 341.94
$ 25.65
$ 367.58
19
$ 367.58
$ 27.57
$ 395.15
20
$ 395.15
$ 29.64
$ 424.79
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