Question

Bob has purchased a U.S. savings bond for his newborn daughter for $1000. The bond will mature to a value of $1950 when his daughter is 18 years old. What interest rate does this bond have knowing that savings bonds grow according to simple interest.

Answer 1

We know that

Simple Interest = PTR /100

Here P= Principle

T= Time period

R= Rate of intrest

Principle = $ 1000

Future Value = $ 1950

Interest = Future value - Present value

= $ 1950-$ 1000

= $ 950

So the intrest amount is $ 950.

Here Principal = $ 1000

Time period = 18 Years

Simple Intrest = PTR /100

$ 950= $ 1000*18*R/100

$ 950 = $ 18000R/100

$ 950*100 = $ 18000 R

$ 95000/$ 18000 = R

5.2778% = R

Hence the rate of inetrest is 5.2778%

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