You want to purchase a bond that will value $10,000 in 10 years. If the simple interest rate is 9.5% per year, what is the maximum amount you should pay right now?

Question

Quizplus · Accepted Answer

You should buy a bond with a current value of $5128.
To find the principal invested amount (P) that will result in a total accrued amount of $10,000 (A) after 10 years (t) with a simple interest rate of 9.5% (r), we must input the values and solve for P:
A = P(1 + rt).
10,000 = P(1 + (0.095 x 10))
10,000 = P(1 + 0.95)
10,000 = P x 1.95
P = 10,000 / 1.95
P = 5128

You Want to Purchase a Bond That Will Value $10,000