Investing in savings bonds
When investing in savings bonds, keep in mind that they are usually sold by the United States government
This type of bonds can be purchased with a face value ranging from 50 to 10,000.
The cost of these bonds is 50% of the face value
In order to find out how much interest you will earn, you need to know the redemption value, or the value of the bond when it is redeemed.
A chart similar to the one below can be used when computing the redemption value
Say for instance, you buy a 1000 dollars bond and redeemed it 4 years later. What is the redemption value of the bond? How much interest did you earn?
You can compute the redemption value as the following:
Cost of Bonds = Face Value × 50%
Cost of Bonds = 1000 × 0.50
Cost of Bonds = 500
Redemption Value = Redemption Value of 100 dollars × Number of 100 dollars in Face Value
Redemption Value = 60.21 × 20
Redemption Value = 1204.2
The redemption value is 1204.2 dollars
Interest = Redemption Value − Cost of Bonds
Interest = 1204.2 - 1000
Interest = 204.2
The interest is 204.2 dollars