Question 1193714: Topics In Contemporary Math
21: Simple Interest
3) To replace the statue of Jebediah Springfield that Bart, Curly, Jimbo, and Nelson destroyed, Mayor Quimby authorized the sale of $25,000 in 10-year, 5% annual coupon bonds. What is the value of each coupon payment? How much interest is paid in total until the bonds are mature? What is the total cost of replacing the statue?
Answer by proyaop(69)   (Show Source):
You can put this solution on YOUR website! * **Calculate the annual coupon payment:**
* Annual coupon payment = Coupon rate * Face value
= 0.05 * $25,000
= $1,250
* **Total interest paid over 10 years:**
* Total interest = Annual coupon payment * Number of years
= $1,250 * 10 years
= $12,500
* **Total cost of replacing the statue:**
* The total cost of replacing the statue is **not** directly related to the bond issue.
* The $25,000 bond issue is just one way to finance the project.
* The actual cost of the statue could be higher or lower than $25,000.
**Therefore:**
* **Value of each coupon payment:** $1,250
* **Total interest paid:** $12,500
* **Total cost of replacing the statue:** **Cannot be determined from the given information.**
The bond issue provides a method of financing, but it doesn't reveal the true cost of the statue itself.
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