Question

Suppose that you buy a bond with face value $4000 that was originally issued 18 months ago. The maturity date is 4 years from the time it was issued, and the interest rate is 3% simple interest per year. If you pay $3560 for the bond and keep it until the maturity date. Find the amount of interest that will be paid on the bond at maturity, and the total amount of money you’ll get from the issuer at that point. Find the profit you’d make on this transaction. What percent of your investment is the profit made?

Answer 1

amount of interest is $267

total profit is $173

profit % is 4.86 %

Explanation:

Given data

face value = $4000

time period = 18 months = 1.5 years

maturity 4 years

interest = 3%

principal = $3560

to find out

amount of interest, profit , percent of your investment is the profit made

solution

we know time period is lapsed for 1.5 years i.e now interest for time 2.5 year will be calculate

first we calculate the interest i.e

interest = ( principal × rate × time ) /100 ...........1

put all value principal, rate and time in equation 1 we get interest i.e.

interest = ( 3560 × 3 × 2.5 ) /100

interest = $267

so now total amount with interest will be

principal + interest

amount = $3560+$267

amount = $3827

so total benefit we get i.e. face value - total amount

total benefit = face value - total amount

total benefit = $4000 - $3827

total benefit = $173

so total profit is $173

and profit % = ( profit / principal ) × 100

profit % = ( 173 / 3560 ) × 100

profit % = 4.859 %

so total profit % is 4.86 %