Results 1 to 2 of 2

Math Help - word problem

  1. #1
    Junior Member
    Joined
    Nov 2006
    Posts
    62

    word problem

    I have a two part question, the first part I think is right, I would appreciate if you would look it over. The second part I am not sure about. Here goes:
    A bond wioll pay $10,000 when it come due in 15 years. what is the price of the bond if the yield is to be 9% per annum compounded annually?
    I used the Equation P = A*(1+i) ^n and the equation is 10,000 = A(1+.09)^15. Solving for A:
    A = $2,745.38

    The other part of the question asks:
    When the bond has only 10 years left to maturity, it is offereed for sale at $3855.43. I am asked to estimate the yield on the bond if it is then purchased and held to maturity.
    Thank you for your help!
    Keith
    Follow Math Help Forum on Facebook and Google+

  2. #2
    MHF Contributor
    Joined
    Apr 2005
    Posts
    1,631
    Quote Originally Posted by kcsteven View Post
    I have a two part question, the first part I think is right, I would appreciate if you would look it over. The second part I am not sure about. Here goes:
    A bond wioll pay $10,000 when it come due in 15 years. what is the price of the bond if the yield is to be 9% per annum compounded annually?
    I used the Equation P = A*(1+i) ^n and the equation is 10,000 = A(1+.09)^15. Solving for A:
    A = $2,745.38

    The other part of the question asks:
    When the bond has only 10 years left to maturity, it is offereed for sale at $3855.43. I am asked to estimate the yield on the bond if it is then purchased and held to maturity.
    Thank you for your help!
    Keith
    I would answer it like this.

    It is like you invest the $3855.43 in 10 years, compounding annualy.

    10,000 = 3855.43(1 +i)^10
    (1+i)^10 = 10,000/3855.43 = 2.593744407
    1 +i = (2.593744407)^(1/10) = 1.100000083
    i = 1.1000 -1 = 0.10
    Therefore, the yield would be 10 percent. ----------answer.
    Follow Math Help Forum on Facebook and Google+

Similar Math Help Forum Discussions

  1. word problem - the snow plough problem?
    Posted in the Differential Equations Forum
    Replies: 1
    Last Post: October 13th 2011, 01:02 PM
  2. Replies: 3
    Last Post: January 2nd 2011, 08:20 PM
  3. 1 Word problem and 1 function problem
    Posted in the Algebra Forum
    Replies: 8
    Last Post: April 21st 2010, 08:01 AM
  4. Replies: 2
    Last Post: January 10th 2009, 05:49 AM

Search Tags


/mathhelpforum @mathhelpforum