Question

Annapolis Company purchased a $4,000, 6%, 5-year bond at 101 and held it to maturity. The straight line method of amortization is used for both premiums & discounts. What is the net cash received over the life of the bond investment? (all money received minus all money paid, round to nearest whole dollar)

Answer 1

Answer:

The answer is "$\bold{\ 1160}$"

Step-by-step explanation:

Calculating total paid money:

$= \ 4000 \times 101\% \\\\= \ 4000 \times \frac{101}{100} \\\\=\ 40 \times 101\\\\=\ 4040$

$\text{Total received money = Principle on Maturity + Interest for 5 years}$

                                   $= \ 4000 + \ 4000\times 6\% \times 5 \\\\= \ 4000 + \ 4000\times \frac{6}{100} \times 5 \\\\= \ 4000 + \ 40 \times 6 \times 5 \\\\= \ 4000 + \ 40 \times 30 \\\\= \ 4000 + \ 1200 \\\\= \ 5200$

Total earnings over the life of the corporate bond

$= \ 5200 - \ 4040 \\\\=\ 1160$