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15 August, 07:43

A bond paying 4% interest compounded monthly has matured after 10 years, giving the owner $20,000. How much was invested 10 years ago?

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  1. 15 August, 11:14
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    Use the formula A = P (1 + r/n) ^ (nt), where r is the annual interest rate expressed as a decimal fraction.

    $20000 = A (1 + 0.04/12) ^ (12*10), or

    $20000 = A (1.00333) ^120, or $20000 = A (1.49)

    Then the original amount, A, was $20000/1.49 = $13415.32.
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