Question

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

Answer 1

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.