Question

Michelle buys a bond for $5,000. every year that she holds the bond, she'll receive interest payments of $250. the interest rate on the bond is

a. 2 percent.
b. 5 percent.
c. 40 percent.
d. 20 percent.

Answer 1

this can be solve using the formulaF = P(1 + i)^nwhere F is the future worth of the bondP is the cost of the bondi is the interest raten is the number of years
F = 5000 + 250F = 5250
5250 = 5000( 1 + i)^1solve for ii = 5250/5000 - 1i = 0.05i = 5 %