Answer:
Ans. He should pay $4,781.47 for this bond.
Explanation:
Hi, all we have to do is to bring to present value $5,500 at 2% per year compounded continuously, from year 7.
We have to use the following formula.
[tex]PresentValue=\frac{FutureValue}{e^{rt} }[/tex]
Where:
r = the compounded continuusly compounded rate
t = time to its maturity
It should look like this.
[tex]PresentValue=\frac{5,500}{e^{0.02*7} }=4,781.47[/tex]
So, the fair price to pay for this bond is $4,781.47
Best of luck.
