A bond is issued with a $500 face value, a 2% yield, and a maturity of 1 year. If an investor purchases the bond at face value and holds it until the bond's maturity date, how much should the bondholder expect to receive in payment?(1 point)

Question

Responses

$500
500 dollars

$10
10 dollars

$0
0 dollars

$510

Answer 1

If an investor purchases the bond at face value ($500) and holds it until maturity, they will receive the face value of the bond plus the interest earned over the year.

The bond has a 2% yield, which means the interest for one year is:

\[ \text{Interest} = \text{Face Value} \times \text{Yield} = 500 \times 0.02 = 10 \text{ dollars} \]

At maturity, the bondholder will receive the face value of the bond plus the interest:

\[ \text{Total Payment at Maturity} = \text{Face Value} + \text{Interest} = 500 + 10 = 510 \text{ dollars} \]

Therefore, the bondholder should expect to receive $510.