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Popular Word Problems >

Chau wants to buy a bond that will mature to 5000 in eight years. How much should he pay for the bond now if it earns interest at a rate of 3.5% per year, compounded continuously?

Solution

C ha u w an t s t o b u y a b o n d t ha t w i ll ma t u re t o 5000 in e i g h t ye a rs . Ho w m u c h s h o u l d h e p a y f or t h e b o n d n o w i f i t e a r n s in t eres t a t a r a t e o f 3.5% p er ye a r, co m p o u n d e d co n t in u o u s l y ?

Solution

Principal : 3778.92

Solution steps

Translate the problem into an equation:

5000 = P e^{0.035 \cdot 8}

Solve for

P, 5000 = P e^{0.035 \cdot 8} : P = 3778.92

Principal : 3778.92

Popular Examples

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