A $2,000 bond earns 10% interest per year, compounded annually.

Question

A. Write a function, V, that models the value of the bond t years after it is purchased.

 

B. What is the value of the bond 2 years after it is purchased?

Answer 1

Since interest is compounded annually, or once per year,

value as a function of time is given byL

 

V = p(1+r)^t

V = future amount

p = principal = 2000

r = interest rate = 0.1

t = time in years 

 

V = 2000(1+0.1)^t

V = 2000(1.1)^t

 

After 2 years: V = 2000(1.1)² = $2,420