The following information for a bond having no expiration date: bond price = $1,000; bond fixed annual interest payment = $100; bond annual interest rate = 10 percent.Refer to the above information.If the price of this bond falls by $200, the interest rate in effect will:
A)rise by 2.5 percentage points.
B)rise by 5 percentage points.
C)fall by 2.5 percentage points.
D)fall by 5 percentage points.

Question

Quizplus · Accepted Answer

If the bond price falls to $800, the interest rate becomes $100/$800 = 12.5%. The increase is 2.5 percentage points from the original 10%.

The Following Information for a Bond Having No Expiration Date