A consol has an annual coupon payment of $50. If the price of the consol rose from $400 to $500, the yield on the consol would
A) fall from 10 percent to 8 percent.
B) fall from 12.5 percent to 10 percent.
C) rise from 10 percent to 12.5 percent.
D) rise from 8 percent to 10 percent.

Question

Quizplus · Accepted Answer

The yield on a consol is calculated as the coupon payment divided by the price of the consol. 
Initially, the yield is 50/400 = 0.125 (or 12.5%). 
If the price of the consol increases to $500, then the yield will be 50/500 = 0.1 (or 10%). 
Therefore, the yield will fall from 12.5% to 10%, which is option B.

A Consol Has an Annual Coupon Payment of $50