The price of a bond with no expiration date is $10,000 and it has a fixed annual interest payment of $2,000.If the bond is sold to a new owner for a price of $12,500, then the effective interest rate yield on the bond is now:
A)22 percent.
B)18 percent.
C)17 percent.
D)16 percent.

Question

Quizplus · Accepted Answer

The effective interest rate yield is calculated by dividing the annual interest payment by the current price of the bond. So, $2,000 / $12,500 = 0.16 or 16 percent.

The Price of a Bond with No Expiration Date Is