A corporation has promised to pay $1,000 20 years from today for each bond sold

Question

A corporation has promised to pay $1,000 20 years from today for each bond sold now. No interest will be paid on the bonds during the 20 years, and the bonds are discounted at an interest rate of 7%, compounded semiannually. Approximately how much should an investor pay for each bond?

A. $70.00 B. $252.57 C. $629.56 D. $857.43

Your retirement account has a current balance of $50,000. What interest rate would need to be earned in order to accumulate a total of $1,000,000 in 30 years, by adding $6,000 annually?

A. 5.02% B. 7.24% C. 9.80% D. 10.07%

Explanation / Answer

Present value of annuity = P×(1÷(1+r)^n)

r is interest rate

P is payment

n is number of periods

= $1,000×(1÷(1+(7%÷2))^(20×2))

= $252.57

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