Question

Suppose that you buy a bond with face value $1,000 that was originally issued 18 months ago. The maturity date is 4 years from the time it was issued, and the interest rate is 4% simple interest per year. If you pay $820 for the bond and keep it until the maturity date, what is your profit? What percent of your investment is the profit made? (Round to one decimal place; Give your answer as a percentage; and Do not include the percent symbol with your answer)

Answer 1

Explanation:

Interest earned during the rest of 2 years and 6 months

40 + 40 + 40 = 120

he will be getting 1000 at the time of maturity ie after 2.5 years .

Total receipt = 1000 + 120 = 1120

investment made = 820

total receipt earned = 1120

profit made = 300

time = 2.5 years

profit = investment x rate of intt x time / 100

300 = 820 x r x 2.5 / 100 where r is rate of interest

r = 30000 / 820 x 2.5

= 14.63 % .