Question

The school district needs to pass a bond levy for funding to remodel existing schools and to build new schools. Expenditures for the new and remodeled buildings will begin two years after passage of the bond. If the school district receives all funding immediately after the passage of the bond and can invest the funds at a rate of 2.75% per year, how large must the bond be for the district to have $48,000,000 at the start of construction?

Answer 1

Answer:

$45,465,039.87

Explanation:

Data provided:

Interest rate, r = 2.75% per year = 0.0275

Time, n = 2 years

Future value = $48,000,000

Now,

The Future value = Present value × ( 1 + r )ⁿ

On substituting the respective values, we get

$48,000,000 = Present value × ( 1 + 0.0275 )²

or

$48,000,000 = Present value × 1.05575625

or

Present value = $\frac{\textup{48,000,000}}{\textup{1.05575625}}$

or

Present value = $45,465,039.87

Hence,

The bond should be of $45,465,039.87 so as to have $48,000,000 at the start of construction