Refer back to the Series EE savings bonds we discussed at the very beginning of

Question

Refer back to the Series EE savings bonds we discussed at the very beginning of the chapter. a. Assuming you purchased a $50 face value bond, what is the exact rate of return you would earn if you held the bond for 20 years until it doubled in value? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. If you purchased a $50 face value bond in early 2017 at the then current interest rate of .10 percent per year, how much would the bond be worth in 2027? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. In 2027, instead of cashing the bond in for its then current value, you decide to hold the bond until it doubles in face value in 2037. What rate of return will you earn over the last 10 years? (Do not round intermediate calculations

Explanation / Answer

a). FV = PV × (1 + r)t

r = (FV / PV)1/t – 1

r = (100 / 50)1/20 – 1 = (2)1/20 – 1 = 1.0353 – 1 = 0.0353 or 3.53%

(b). FV = PV × (1 + r)t

= 50 × (1 + 0.001)(2027 – 2017) = 50 × (1.001)10 = 50 × 1.010045 = $50.50

(c). r = (FV / PV)1/t – 1

= (100 / 50.50)1/10 – 1 = (1.98)1/10 – 1 = 1.07069 – 1 = 0.07069 or 7.69%

Related Questions

Navigate

• Browse (All)
• Browse R
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.