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 $800 today, which the bank will compound at 6.5% for the next ten years. The savings bond must be held for at least five years, but can then be cashed 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 ten? (Use an Excel spreadsheet to solve this problem.) What is the value of the savings bond at the end of year five? $nothing (Round to the nearest cent.) What is the value of the savings bond at the end of year six? $nothing (Round to the nearest cent.) What is the value of the savings bond at the end of year seven? $nothing (Round to the nearest cent.) What is the value of the savings bond at the end of year eight? $nothing (Round to the nearest cent.) What is the value of the savings bond at the end of year nine? $nothing (Round to the nearest cent.) What is the value of the savings bond at the end of year ten? $nothing (Round to the nearest cent.)

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter4: Time Value Of Money

Section: Chapter Questions

Problem 28P

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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

$800

today, which the bank will compound at

6.5%

for the next ten years. The savings bond must be held for at least five years, but can then be cashed 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 ten? (Use an Excel spreadsheet to solve this problem.)

What is the value of the savings bond at the end of year five?

$nothing

(Round to the nearest cent.)

What is the value of the savings bond at the end of year six?

$nothing

(Round to the nearest cent.)

What is the value of the savings bond at the end of year seven?

$nothing

(Round to the nearest cent.)

What is the value of the savings bond at the end of year eight?

$nothing

(Round to the nearest cent.)

What is the value of the savings bond at the end of year nine?

$nothing

(Round to the nearest cent.)

What is the value of the savings bond at the end of year ten?

$nothing

(Round to the nearest cent.)

Expert Solution

Step 1

"Present Value" is the present-day value of a sum of money expected to be received at a future date calculated at a specified rate of interest.

"Future value" specifies what the present value of an asset is worth at a specified time in the future.

Present value and future value are interrelated and one cannot determine the other in the absence of the other. They both are directly related assuming that the interest rate and time period remain constant. In such an instance when one increases the other increases as well and when one decreases the other decreases as well.

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