C, an individual, purchased a $80,000 bond on its issue date, September 1, Year 1. The...
C, an individual, purchased a $80,000 bond on its issue date, September 1, Year 1. The bond pays interest at maturity, August 31, Year 3, at a rate of 5% compounded annually. What amount of interest must be included in income for Year 2?
Homework Answers
| Year 1 | 2 | 3 | |
| Value of Investment purchased at Beginning | 80000 | 84000 | 88200 |
| Add:Interest accrued | 80000*.05= 4000 | 84000*.05= 4200 | 88200*.05= 4410 |
| Value of investment at end of year | 84000 | 84000+4200= 88200 | 88200+4410= 92610 |
**in case of compound interest ,Interest is paid on both Principal amount plus any accrued interest .
Amount of interest included in income of year 2 = 4200
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