Question

Suppose your city is building a new park, and issues bonds to raise the money to build it. You obtain a $1,000 bond that pays 5% interest annually that matures in 5 years. How much interest will you earn?

Answer 1

To find out how much interest you will earn, you need to multiply the bond principal amount ($1,000) by the interest rate (5%) and the number of years the bond matures (5).

The interest rate is expressed as a percentage, so you need to convert it to a decimal by dividing it by 100.

Interest = Principal x Interest Rate x Time

Interest = $1,000 x 0.05 x 5

Interest = $1,000 x 0.05 x 5 = $250

So, you will earn $250 in interest over the 5-year period.