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?

  1. $1053
  2. $5128
  3. $9132
  4. None of the above
Explanation

Answer: B - 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

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