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Annapolis Company purchased a $4,000, 6%, 5-year bond at 101 and held it to maturity. The straight line method of amortization is used for both premiums & discounts. What is the net cash received over the life of the bond investment? (all money received minus all money paid, round to nearest whole dollar)

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Answer:

The answer is "[tex]\bold{\$1160}[/tex]"

Step-by-step explanation:

Calculating total paid money:

[tex]= \$4000 \times 101\% \\\\= \$4000 \times \frac{101}{100} \\\\=\$40 \times 101\\\\=\$4040[/tex]

[tex]\text{Total received money = Principle on Maturity + Interest for 5 years}[/tex]

                                   [tex]= \$4000 + \$4000\times 6\% \times 5 \\\\= \$4000 + \$4000\times \frac{6}{100} \times 5 \\\\= \$4000 + \$40 \times 6 \times 5 \\\\= \$4000 + \$40 \times 30 \\\\= \$4000 + \$1200 \\\\= \$5200 \\\\[/tex]

Total earnings over the life of the corporate bond

[tex]= \$5200 - \$4040 \\\\=\$1160[/tex]

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