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Robert buys a $20,000 bond that pays $1,200 interest annually on January 1st. How much does...

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Accounting

Robert buys a $20,000 bond that pays $1,200 interest annually onJanuary 1st. How much does he pay on March 1st?

A. $20,000

B. $21,200

C. $1,200

D. $20,200

Answer & Explanation Solved by verified expert
4.0 Ratings (508 Votes)

The Annual Interest rate in this case is as follows:
Annual Interest Rate = Annual Interest
                                        Investment
Annual Interest Rate = $1,200
                                     $20,000
Anuual Interest Rate = 0.06 or 6% p.a
So the Interest which will be paid on Bond will be for 2 months which is from 1st Jan to 1st March.
Interest on Bond for 2 months = $20,000*6%*2/12
Interest on Bond for 2 months = $200
So Bond payment on 1st March = $20,000+$200 = $20,200
So Option D will be the answer

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