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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 × (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