Sarah holds a bond for 5 years that has a 5.7% percent coupon rate and a $1000 par value.
How much interest does Sarah earn in 4 years?
A- $285
B- $82
C- $258
D- $228
$228
To calculate the interest Sarah earns in 4 years, we need to calculate the annual interest payment and then multiply it by the number of years.
Step 1: Calculate the annual interest payment:
Coupon rate = 5.7% = 0.057
Par value = $1000
Annual interest payment = Coupon rate * Par value
Annual interest payment = 0.057 * $1000
Annual interest payment = $57
Step 2: Multiply the annual interest payment by the number of years:
Interest earned in 4 years = Annual interest payment * Number of years
Interest earned in 4 years = $57 * 4
Interest earned in 4 years = $228
Therefore, Sarah earns $228 in interest over 4 years.
The correct answer is D- $228.
To calculate the interest earned by Sarah over 4 years, we need to first calculate the annual interest earned and then multiply it by the number of years.
The coupon rate of the bond is 5.7%, which means that Sarah earns 5.7% of the bond's par value as interest each year. The par value of the bond is $1000.
Step 1: Calculate the annual interest earned
Annual interest = Coupon rate * Par value
Annual interest = 5.7% * $1000 = $57
So, Sarah earns $57 in interest each year.
Step 2: Calculate the interest earned over 4 years.
Interest earned = Annual interest * Number of years
Interest earned = $57 * 4 = $228
Therefore, Sarah earns $228 in interest over 4 years.
The correct answer is D- $228.