Question

Nannette buys a $5000 20-year bond that has a coupon rate of 2.5 %. If she keeps the bond to maturity, how much money plus principal interest will she have collected over the life of the bond?

Answer 1

The total amount collected over the life of the bond is $7,500.

What is the total amount collected?

A bond is a debt instrument that entitles its holder to regular interest payments. At the end of the life of the bond, the bondholder receives the amount invested back.

Total earnings = interest + amount invested

(20 x 0.025 x 5000) = $2500

Amount invested = $5000

= 2500 + 5000 = $7,500

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