Salma wants to buy a bond that will mature to \$4500 in eight years. How much should she pay for the bond now if it earns interest at a rate of 3.5% per year, compounded continuously?

Solution

Salma wants to buy a bond that will mature to $4500 in eight years. How much should she pay for the bond now if it earns interest at a rate of 3.5% per year, compounded continuously?

Solution

Principal : 3401.03

Solution steps

Translate the problem into an equation:

4500 = P e^{0.035 \cdot 8}

Solve for

P, 4500 = P e^{0.035 \cdot 8} : P = 3401.03

Principal : 3401.03

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