Question

For the given bond, whose interest rate is provided, find the semiannual interest payment and the

Answer 1

Answer:

The semiannual interest payment is $485.5

The total interest earned over the life of the bond is $10,681

Step-by-step explanation:

The formula of the simple interest is I = Prt, where

• P is the money invested
• r is the interest rate in decimal
• t is the time in years

∵ The bond is $20,000

∴ P = 20,000

∵ First Income Fund 11-year bond at 4.855%

∴ t = 11

∴ r = 4.855%

- Change it to decimal by divide it by 100

∴ r = 4.855 ÷ 100 = 0.04855

∵ The semiannual interest payment = P × r × half a year

∴ The semiannual interest payment = 20,000 × 0.04855 × $\frac{1}{2}$ (1)

∴ The semiannual interest payment = 485.5

The semiannual interest payment is $485.5

∵ I = Prt

- Substitute the values of P, r and t in the formula

∴ I = 20,000(0.04855)(11)

∴ I = 10,681

The total interest earned over the life of the bond is $10,681