Investing in savings bonds
When investing in savings bonds, keep in mind that they are usually sold by the United States government. You will need to find the redemption value before you can compute the interest you will earn. Keep reading to see how!
The way we compute interest in savings bonds is different than the way we compute interest in bonds.
This type of bonds can be purchased with a face value ranging from 50 to 10,000 and 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 above could be used when computing the redemption value.
A couple of examples showing how investing in savings bonds work
Example #1
Say for instance, you buy a 1000 dollars bond and redeemed it 4 years later. Using the redemption table shown above, find the redemption value of the bond and the amount of interest you will 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 after 4 years × Number of 100 dollars in Face Value.
Since 1000/100 = 10, the number of 100 dollars in face value is 10.
Redemption Value = 60.21 × 10
Redemption Value = 602.1
The redemption value is 602.1 dollars
Interest = Redemption Value − Cost of Bonds
Interest = 602.1  500
Interest = 102.1
The interest is 102.1 dollars.
Example #2
Say for instance, you buy a 3 million dollars bond and redeemed it 5 years later. Using the redemption table shown above, find the redemption value of the bond and the amount of interest you will earn.
You can compute the redemption value as the following:
Cost of Bonds = Face Value × 50%
Cost of Bonds = 3000000 × 0.50
Cost of Bonds = 1500000
Redemption Value = Redemption Value of 100 dollars after 5 years × Number of 100 dollars in Face Value.
Since 3000000/100 = 30000, the number of 100 dollars in face value is 30000.
Redemption Value = 62.50 × 30000
Redemption Value = 1875000
The redemption value is 1875000 dollars
Interest = Redemption Value − Cost of Bonds
Interest = 1875000  1500000
Interest = 375000
The interest is 375000 dollars.

May 18, 21 06:54 AM
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