Question

Tri-Star Airlines intends to pay off a $20,000,000 bond issue that comes due in 4 years. How much must the company set aside now, at 6 % interest compounded quarterly, to accumulate the required amount of money?

Answer 1

20000000 = x [1 + (.06 / 4)]^(4 * 4)

Answer 2

P = Po(1+r)^n,
P = $20M,
Po = Initial investment,
r = 0.06/4 = 0.015 = Quarterly % rate expressed as a decimal,
n = 4 comp./yr. * 4yrs. = 16 Compounding periods.