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

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

Explanation:

Calculating total paid money:

`= \$4000 * 101\% \\\\= \$4000 * (101)/(100) \\\\=\$40 * 101\\\\=\$4040`

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

`= \$4000 + \$4000* 6\% * 5 \\\\= \$4000 + \$4000* (6)/(100) * 5 \\\\= \$4000 + \$40 * 6 * 5 \\\\= \$4000 + \$40 * 30 \\\\= \$4000 + \$1200 \\\\= \$5200 \\\\`

Total earnings over the life of the corporate bond

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