On September 30, 2019, Stinky Bank issued 10-year bonds at an annual simple interest rate of 4.25%, with interest paid twice a year. Pepe le Pew purchases a $10,000 bond. How much interest will Pepe earn every six months? How much interest will he earn over the 10-year life of the bond?
On September 30, 2019, Stinky Bank issued 10-year bonds at an annual simple interest rate of 4.25%, with interest paid twice a year. Pepe le Pew purchases a $10,000 bond. How much interest will Pepe earn every six months? How much interest will he earn over the 10-year life of the bond?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
- On September 30, 2019, Stinky Bank issued 10-year bonds at an annual simple interest rate of 4.25%, with interest paid twice a year. Pepe le Pew purchases a $10,000 bond.
- How much interest will Pepe earn every six months?
- How much interest will he earn over the 10-year life of the bond?
Expert Solution
Step 1 Part 1
Calculation of interest Pepe will earn every six months:
Hence, Pepe will earn $212.5 every six months
Formula sheet for calculation of interest is shown below:
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