Question
Asked Dec 12, 2019
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Section 3.2 (27)

You want to buy a 10-year bond with a maturity value of $5000, and you wish to get a return of5.5%  annually. How much will you pay? 

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Expert Answer

Step 1

According to the given information

Maturity value(V) = $5000

Rate of interest (r) = 5.5% = 0.055

Time (t) = 10 years

It is required to calculate the amount to pay that is principal (P)

The formula used is:

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V = P(1+r)'

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Step 2

Now plug in the...

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10 5000 = P(1+0.055)" 5000 = P(1.055)" 5000 = P(1.7081) 5000 1.7081 2927.22 = P

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Advanced Math