lf the government finances 194 billion worth of 10year bonds

lf the government finances $194 billion worth of 10-year bonds at a fixed rate o 1 8% compounded quarterly, how much would it have to pay back when the bonds mature? How much interest was paid to finance the bonds? The government will have to pay back approximately Round to the nearest billion as needed.) billion

Solution

Pt = Po(1+r)^n.

r = (1.8%/4) / 100% = 0.0045 = QPR expressed as a decimal.

n = 4 comp/yr * 10 yrs = 40 Compounding periods.

Pt = $194B(1.0045)^40 = $232.2B

Interest = 232.2 – 194 = $38.2B