A bond is issued with a $500

Question

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)
Responses

$510
510 dollars

$500
500 dollars

$10
10 dollars

$0

Answer 1

When the bond matures, the bondholder will receive the face value of the bond plus the interest earned during the period it was held.

In this case, the bond has:

• Face value: $500
• Yield (interest rate): 2%
• Maturity: 1 year

The interest earned over 1 year would be:

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

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

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

Therefore, the bondholder should expect to receive $510.