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Chapter 5: Q. 55 (page 350)

Federal Deficit In fiscal year 2010, the federal deficit was $1.3 trillion. At that time, 10-year treasury notes were paying 3.35% interest per annum. If the federal government financed this deficit through 10-year notes, how much would it have to pay back in 2020? How much was the interest?
Source: U.S. Treasury Department

Short Answer

Expert verified

Amount to be paid back is $$ 1.807$ trillion and interest is $507 billion.

Step by step solution

01

Step 1. Given Information

We are given $P = $ 1.3 t r i l l i o n$

$r = 3.35 % = 0.0335 n = 1 t = 10$

02

Step 2. Amount to be paid back

By using $A = P {(1 + \frac{r}{n})}^{n t}$

$A = 1.3 {(1 + \frac{0.0335}{1})}^{1 \times 10} A = $ 1.807 t r i l l i o n$

03

Step 3. Finding Interest

We will calculate interest by subtracting the future value A (in 2020) from the present P (in 2010)

$I = A - P I = 1.807 - 1.3 = 0.507 t r i l l i o n I = 507 b i l l i o n$

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