Question

Suppose that you buy a bond for $100 that pays 4 percent interest per year. How much money will you have earned when the bond reaches maturity in five years?

Answer 1

Assuming that the bond is a simple-interest bond..... In year 1, the bond pays 100*.04=$4. In year 2 the bond again pays $4. In each of the years 3,4, and 5 the bond pays $4. So, over 5 years, the bond pays.....

(Note that some bonds pay compounding interest (the "interest payments" are rolled into the bond). This results in greater earnings on the bond.

Answer 2

$20