A £1,000 bond yields 5% annually. What is the total interest earned after 2 years?

A £1,000 bond yields 5% annually. What is the total interest earned after 2 years?

• A. £100
• B. £105
• C. £110
• D. £115

Answer: (A)

To determine the total interest earned on a £1,000 bond that yields 5% annually over a period of 2 years, we first need to calculate the annual interest. The interest earned in one year can be calculated as follows: Annual interest = Principal amount × Interest rate = £1,000 × 0.05 = £50 Since the bond yields interest annually, over a 2-year period, the interest will accumulate for each year. Therefore, the total interest earned after 2 years is simply calculated by multiplying the annual interest by the number of years: Total interest after 2 years = Annual interest × Number of years = £50 × 2 = £100 This means, after 2 years, the total interest earned on the bond is £100. Therefore, the correct answer is £100, which directly reflects the result of accumulating the interest annually without any compounding involved.

To determine the total interest earned on a £1,000 bond that yields 5% annually over a period of 2 years, we first need to calculate the annual interest. The interest earned in one year can be calculated as follows:

Annual interest = Principal amount × Interest rate

= £1,000 × 0.05

= £50

Since the bond yields interest annually, over a 2-year period, the interest will accumulate for each year. Therefore, the total interest earned after 2 years is simply calculated by multiplying the annual interest by the number of years:

Total interest after 2 years = Annual interest × Number of years

= £50 × 2

= £100

This means, after 2 years, the total interest earned on the bond is £100. Therefore, the correct answer is £100, which directly reflects the result of accumulating the interest annually without any compounding involved.