Question

A $1,300 bond earns 5% annual simpleinterest on its purchase price. What is thevalue of the bond at the end of 8 year?

Answer 1

Given:

Principal (P) - $1,300

Interest Rate (r) = 5% annual simple interest or 0.05 in decimal form

Time (t) = 8 years

Find: Maturity value at the end of 8 years

Solution:

To determine the maturity value of the bond at the end of "t" years, we can use the formula below:

`M=P(1+rt)`

where M = maturity value, P = principal, r = interest rate, and t = time in years.

Since P, r, and t are already provided in the question, let's plug it into the formula above.

`M=1,300(1+0.05(8))`

Then, solve for M.

a. First, multiply the rate and the time in years.

`0.05*8=0.4`

b. Add 1 to the result in step a.

`0.4+1=1.4`

c. Multiply the result in step b by the principal value.

`1.4*1,300=1,820`

Therefore, at the end of 8 years, the value of the bond will be $1,820.