Use the following to answer questions .
Exhibit: The Bond Market
-(Exhibit: The Bond Market) Given a face value of $1,000, a price of $900, and quantity of Q₁, the interest rate on the bond is

Question

Use the following to answer questions . Exhibit: The Bond Market -(Exhibit: The Bond Market) Given a face value of $1,000, a price of $900, and quantity of Q₁, the interest rate on the bond is

Quizplus · Accepted Answer

The interest rate on the bond can be calculated using the formula: interest rate = (annual coupon payment / bond price) x 100%. 
We are given the face value of $1,000, so if the coupon rate is c, then the annual coupon payment would be $1,000 x c. 
We are given a price of $900, so the annual coupon payment is $111 (= $1,000 x c) in order to get an interest rate of 11.1% (= $111 / $900 x 100%). Therefore, the answer is C.

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