The price of bond. Given: The maintenance cost for 10 years is $25000. The maintenance cost from 10 years to infinity years is $35000. The rate of interest is 15\%.

banganX

banganX

Answered question

2021-08-20

The price of bond.
Given: The maintenance cost for 10 years is $25000.
The maintenance cost from 10 years to infinity years is $35000.
The rate of interest is 15%.

Answer & Explanation

Delorenzoz

Delorenzoz

Skilled2021-08-21Added 91 answers

Calculation:
Write the equation for present worth of 10 years.
P=A[(1+i)n1i(1+i)n] .......(I)
Here, present worth is P, annual value is A, rate of interest is i, and number of years is n.
Substitute $25000 for A, 15% for i, and 10 years for n in Equation (I).
P=$25000[(1+0.15)1010.15(1+0.15)10]
=$25000×5.019
=$125475
Write the equation for present worth of infinity years.
P=A1i ......(II)
Substitute $35000 for A, 15% for i in Equation (II).
P=$35000
=233334
Conclusion:
Therefore, the correct option is (d) $233334.

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