Sarah holds a bond for 5 years that has a 5.7% percent coupon rate and a $100 par value.
How much interest does Sarah earn in 4 years?
$285
$82
$258
$228
100 * 0.057 * 5
To calculate the amount of interest Sarah earns in 4 years, we need to determine the annual interest payment and multiply it by the number of years.
The annual interest payment can be calculated using the coupon rate and the par value of the bond.
Coupon Payment = Coupon Rate * Par Value
Coupon Payment = 5.7% * $100 = $5.70
Since the bond is held for 5 years, the total interest Sarah earns over the 5-year period is:
Total Interest = Coupon Payment * Number of Years
Total Interest = $5.70 * 5 = $28.50
However, we only need to calculate the interest earned in 4 years.
Interest in 4 years = Coupon Payment * Number of Years
Interest in 4 years = $5.70 * 4 = $22.80
Therefore, Sarah earns $22.80 in interest over 4 years. So the correct answer is $22.80.
To calculate the amount of interest Sarah earns in 4 years, we need to determine the annual interest payment and then multiply it by the number of years.
The annual interest payment can be calculated using the formula:
Interest Payment = Coupon Rate * Par Value
In this case, the coupon rate is 5.7% and the par value is $100, so the annual interest payment is:
Interest Payment = 0.057 * $100 = $5.70
Since Sarah holds the bond for 5 years, the total interest earned would be 5.70 * 5 = $28.50
However, we need to determine the interest earned in 4 years. To do that, we can calculate the amount of interest earned in the first four years and subtract any interest earned in the fifth year.
Interest earned in the first four years:
Interest = Interest Payment * Number of Years = $5.70 * 4 = $22.80
Therefore, Sarah earns $22.80 in interest after 4 years.
Among the given options, $22.80 is closest to $228. So the correct answer is $228.