To determine To calculate: The semiannual interest payment and the total interest paid over the life of the bond. Explanation Given: a) The principal ( P ) value of the bond whose maturity value is 30 years is $ 7 , 500 and the rate ( r ) of interest of the bond is 7.3 % . b) The principal ( P ) value of the bond whose maturity value is 10 years is $ 15 , 000 and the rate ( r ) of interest of the bond is 9.0 % . Formula used: I = P × r × t , where ‘I’ be the simple interest, ‘P’ be the principal, ‘r’ be the rate of interest and ‘t’ be the time. Calculation: a) Step 1: Rate is expressed as a decimal while calculating the interest. Thus, to convert the rate percent into a decimal, rate percent is divided by 100. r = 7.3 % = 7.3 100 = 0.073 Step 2: The semiannual interest has to be calculated, so the time taken will be 1 2 year. The interest is computed by multiplying the principal amount by rate and time. Thus, in order to calculate the semiannual interest, apply this formula as shown below: I = P × r × t = $ 7500 × 0.073 × 1 2 = $ 273.75 Thus, the semiannual interest payment is $ 273.75 . Step 3: In order to calculate the total interest over the life of the bond, the time taken will be 3 years. Following formula for calculation of total interest will be applied: I = P × r × t = $ 7500 × 0

MATH W/APPLICAT.W/NOTES GDE +ACCESS CODE

11th Edition

ISBN: 9781323751671

Author: Lial

Publisher: PEARSON C

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Chapter 5.1, Problem 2CP

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To calculate: The semiannual interest payment and the total interest paid over the life of the bond.

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Chapter 5.1, Problem 1CP

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MATH W/APPLICAT.W/NOTES GDE +ACCESS CODE

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