Question

A government bond is bought for $5000 on June 1, 2010. The value of the bond increases each year by 3.9% of the previous year's value, and the bond matures on June 1, 2030. Determine the value of the bond at maturity.

I'm confused.

Answer 1

The bond grows for 20 years, so you need to calculate the value after the 20th year. Since it grows by 3.9% per year, multiply each year's value by 1.039 to get the next year's value.

ding ding ding - use the growth factor formula: Tn = a r^(n-1)
a=5000
n=20
r = 1.039