Question

Muriel buys a $2,000 savings bond with a 4% coupon and 20 years to maturity. How much interest will she earn over the life of the bond?

Answer 1

To solve: use the simple interest calculation.

interest earned over the life of the bond = (bond price)(coupon rate)(years)
= (2,000)(0.04)(20)
= $1,600

So after 20 years on a 4% coupon bond starting at $2,000 Muriel will earn $1,600 in interest.