P3-g (similar to) Present value (with changing years). When they are first bom,

Question

P3-g (similar to) Present value (with changing years). When they are first bom, Grandma gives each of her grandchildren a $5,000 savings bond that matures in 18 years. For each of the following grandchldren, what is the present value of each savings bonds if the current discount rate is 6%? a Seth turned sixteen years old today b. Shawn turned eleven years old today c. Sherry turned ten years old today. d. Sheila turned four years old today a. Seth just tumed sixteen years old today and the current discount rate is 6%. What is the present value of his savings bond? (Round to the nearest cent)

Explanation / Answer

a. seth just turned 16 years old, i.e. 15 completed years

discounting rate(R) = 6%

N= 15

FV after 15 completed years =PV(1+R)^N

FV= $5000(1.06)^15

FV= $11982.79

b. shawn turned 11 years old today i.e. 10 years completion

discounting rate(R) = 6%

N= 10

FV after 10 completed years =PV(1+R)^N

FV= $5000(1.06)^10

FV= $88954.25

c. sherry turned 10 years today

discounting rate(R) = 6%

N= 9

FV after 9 completed years =PV(1+R)^N

FV= $5000(1.06)^9

FV= $8447.40

d. shella turned 4 years old today

discounting rate(R) = 6%

N= 3

FV after 3 completed years =PV(1+R)^N

FV= $5000(1.06)^3

FV= $5955

e. shane was just born

$5000 is the PV as no time has elapsed , so no discounting

[ ASSUMPTIONS - THE BOND CARRIES 6% pa INTEREST ]

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