Suppose you buy a $9000 savings bond that pays 4.75% annual simple interest.
When you cash in the bond, you have to pay 16% federal taxes on the interest you
earned. How much money would you net if you cash in the bond after six years?
Type your answer in the box below. Round to 2 decimal places.
Please helpppp: I need help!
9000 (1 + 6*0.0475) * 0.84 = ____
To calculate the net amount of money you would receive when cashing in the bond after six years, we first need to find the interest earned over the six-year period and then subtract the federal taxes.
Step 1: Calculate the interest earned
The formula for simple interest is: Interest = Principal × Rate × Time
Given:
Principal (P) = $9000
Rate (R) = 4.75% or 0.0475 (in decimal)
Time (T) = 6 years
Interest = $9000 × 0.0475 × 6
Interest = $2565
Step 2: Calculate the amount of interest after taxes
You mentioned that you need to pay 16% in federal taxes on the interest earned. To find the amount of interest after taxes, we need to subtract 16% of the interest earned.
Taxes = 16% or 0.16 (in decimal) × $2565
Taxes = $410.40
Step 3: Calculate the net amount received
The net amount received is the sum of the principal and the interest after taxes.
Net amount received = Principal + (Interest - Taxes)
Net amount received = $9000 + ($2565 - $410.40)
Net amount received = $9000 + $2154.60
Net amount received = $11154.60
Rounded to 2 decimal places, the net amount of money you would receive when cashing in the bond after six years is $11,154.60.
Please note that this calculation assumes that the interest is compounded once per year and that there are no other fees or deductions.