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March 27, 2017

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Suppose that you buy a bond for $100 that pays 4 percent interest per year. How much money will you have earned when the bond reaches maturity in five years?

  • economics - ,

    Assuming that the bond is a simple-interest bond..... In year 1, the bond pays 100*.04=$4. In year 2 the bond again pays $4. In each of the years 3,4, and 5 the bond pays $4. So, over 5 years, the bond pays.....

    (Note that some bonds pay compounding interest (the "interest payments" are rolled into the bond). This results in greater earnings on the bond.

  • economics - ,

    $20

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