Bonds and Financial Assets Quick Check

Question

2 of 52 of 5 Items
Question
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)
Responses

$500
500 dollars

$510
510 dollars

$0
0 dollars

$10

Answer 1

If the bond is issued with a $500 face value and has a yield of 2%, this means that the bondholder will receive 2% of the face value as interest payment.

Calculating the interest: - Interest = Face Value × Yield - Interest = $500 × 0.02 = $10

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

Total amount received at maturity: - Total = Face Value + Interest - Total = $500 + $10 = $510

Therefore, the bondholder should expect to receive $510 at maturity.

The correct response is: $510