Question

Bill purchases a bond for $1,200. It pays 7% simple annual interest and matures in 8 years. How much interest will Bill earn

after the bond reaches maturity?

Answer 1

672

Explanation:

I'm going to assume that this is a zero-coupon bond

simple interest is as follows

PV(1+it)

we have

1200(1+.07*8)

1200*1.56=1872

This is the accumulated value

to find the interest earned we use the following equation

AV-PV

we have

1872-1200=672