Pavel is considering buying a $10,000 bond with no expiration date that generates yearly payments of $500. If the price of the bond were to fall to $9,000,

Question

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If the price of the bond falls to $9,000, Pavel can purchase it at a discount. This would increase the bond's yield from 5 percent ($500/$10,000) to 5.6 percent ($500/$9,000). Therefore, buying the bond at a lower price would result in a higher rate of return.

Pavel Is Considering Buying a $10,000 Bond with No Expiration