A consol is selling at $1,200 with an interest rate of 5%. How much would this bond sell for if the interest rate were 8% instead?
A) $200.
B) $750.
C) $1,650.
D) $1,920.

Question

Quizplus · Accepted Answer

A consol is a type of bond that pays an annual interest payment in perpetuity. The price of a consol is calculated as the annual payment divided by the interest rate. If the consol is selling for $1,200 at a 5% interest rate, it means the annual payment is $60 ($1,200 * 5%). If the interest rate increases to 8%, the price of the consol would be the annual payment ($60) divided by the new interest rate (8%), which equals $750 ($60 / 0.08).

A Consol Is Selling at $1,200 with an Interest Rate