Question

In 25 years, a bond with a 4.75% annual interest rate earned $2,375 as interest. What was the principal amount of the bond if the interest was calculated based on simple interest

Answer 1

Denote the principal amount: P

In 25 years, a bond with a 4.75% annual interest rate earned $2,375 as interest.

=> P x (1 + 4.75/100)^25 - P = 2375

=> P x 3.19 - P = 2375

=> P x 2.19 = 2375

=> P = 2375/2.19 = 1084.48$

The principal is most commonly used to refer to the original amount borrowed on a loan or invested in an investment. It can also refer to the face value of a bond, the owner of a private company, or a key participant in a transaction.

Suppose you buy a home for $ 300,000 with a 20% down payment. In this case, you will pay back $ 60,000 on your loan. The mortgage lender then pays $ 240,000, which is the cost of the loan balance. In this case, the principal balance will be $ 240,000.

Learn more about the principal amount  here

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