Question 26
6 pts
5
Details
Be sure to clearly show your work for each part of this question.
A broker encourages you to invest in a bond with an issue price of $$ 5, 500$ that pays $3.1 %$ simple interest annually and matures in 6 years. If you make this investment, find:
a. The amount paid each year in interest payments.
$$$
b. The total amount earned with the bond.
$$$
c. Assume interest payments are sent out each year. Find the amount you would receive on the maturity date.
$$$

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Answer

The amount received on the maturity date is the principal amount plus the total interest earned, which is $5500 + 1023.0 = 6523.0$ .

Steps

Step 1 ：Calculate the annual interest payment using the formula $I = P \times r \times t$ , where $I$ is the interest, $P$ is the principal amount, $r$ is the interest rate, and $t$ is the time in years.

Step 2 ：The principal amount $P$ is $$ 5500$ , the interest rate $r$ is $3.1 %$ or $0.031$ , and the time $t$ is $6$ years.

Step 3 ：The annual interest payment is $I = 5500 \times 0.031 \times 1 = 170.5$ .

Step 4 ：The total amount earned with the bond is the annual interest payment multiplied by the number of years, which is $170.5 \times 6 = 1023.0$ .

Step 5 ：The amount received on the maturity date is the principal amount plus the total interest earned, which is $5500 + 1023.0 = 6523.0$ .

Answer

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