The discussion revolves around calculating the present value of a $50 U.S. Savings Bond that pays 6.22% interest compounded monthly and matures in 11 years and 2 months. Participants are exploring the implications of the bond's future value and the appropriate formula to determine its present value.
The discussion is ongoing, with participants providing guidance on the correct approach to the problem. There is a focus on understanding the relationship between present and future values, and some participants are questioning the assumptions made in earlier calculations.
Participants note that the bond matures in a specific time frame and that the interest rate is annual, which impacts the calculations. There is also a mention of the need to clarify the number of compounding periods based on the bond's maturity duration.
That's not a reasonable answer. No reasonable person would pay $50.95 now for a bond whose value is $50 at maturity, which is 11 years 2 months in the future.DCHomage said:Homework Statement
A $50 U.S. Savings Bond paying 6.22% compounded monthly matures in 11 years 2 months. What is the present value of the bond?
Homework Equations
The Attempt at a Solution
I ended up getting $50.95
Mark44 said:That's not a reasonable answer. No reasonable person would pay $50.95 now for a bond whose value is $50 at maturity, which is 11 years 2 months in the future.
The idea is that you pay a smaller value in the present and get a larger value in the future. Surely you must have an equation that you can use.
Mark44 said:Sure. Give it a whirl and show us your work.
symbolipoint said:Try going to a lower level. You know the compounding is monthly; so how many months does the bond earn? This is 6.22 % each month; and the interest is COMPOUNDED monthly.