Question

Compute the specified quantity. Round all answers to the nearest month, the nearest cent, or the nearest 0.001\%, as appropriate. A 4-year bond costs $\$ 10,000$ and will pay a total of $\$ 2,800$ in interest over its lifetime. What is its annual interest rate? [HINT: See Example 3.]

Name: Problem 22, Chapter 2: Finite Mathematics and Applied Calculus
Uploaded: 2021-09-03T12:07:16-08:00
Duration: 1 min 30 s
Channel: Monica Miller
Description: Compute the specified quantity. Round all answers to the nearest month, the nearest cent, or the nearest 0.001%, as appropriate. A 4-year bond costs 10,000 and will pay a total of 2,800 in interest over its lifetime. What is its annual interest rate? [HINT: See Example 3.]

   Compute the specified quantity. Round all answers to the nearest month, the nearest cent, or the nearest 0.001\%, as appropriate.
A 4-year bond costs $\$ 10,000$ and will pay a total of $\$ 2,800$ in interest over its lifetime. What is its annual interest rate? [HINT: See Example 3.]

Finite Mathematics and Applied Calculus

Stefan Waner, Steven… 7th Edition

Chapter 2, Problem 22

Instant Answer

Solved by Expert Monica Miller

09/03/2021

Step 1

The future value is the sum of the initial cost of the bond and the total interest paid over its lifetime. In this case, the future value is $10,000 + $2,800 = $12,800. Show more…

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Compute the specified quantity. Round all answers to the nearest month, the nearest cent, or the nearest 0.001\%, as appropriate. A 4-year bond costs $\$ 10,000$ and will pay a total of $\$ 2,800$ in interest over its lifetime. What is its annual interest rate? [HINT: See Example 3.]

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Key Concepts

Rounding and Precision in Financial Calculations

Rounding and precision are critical in financial computations to ensure that reported values are both accurate and easily interpretable. Different contexts demand rounding to the nearest cent, month, or specific percentage precision to maintain consistency and clarity in quantitative results.

Simple Interest

Simple interest involves calculating the amount of interest earned or paid on a principal sum over a period of time without compounding. This method uses the formula Interest = Principal × Rate × Time, providing a direct way to determine interest accrual over time.

Annualized Rate

An annualized rate describes the equivalent yearly rate of return or cost, derived from a multi-year total interest amount by dividing the total interest by the product of the principal and the number of years. This process converts a multi-period return into an annual figure, allowing for meaningful comparisons across investments.

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