A few years ago, you bought a bond with no expiration and a ﬁxed annual interest payment of $1,000 at a price of $10,000. If the interest rate in the economy is now 12.5 percent a year and you want to sell the bond, the maximum price that you can get for it is
A) $7,500.
B) $8,000.
C) $9,750.
D) $12,500.

Question

Quizplus · Accepted Answer

The maximum price that can be paid for a bond is calculated by dividing the annual interest payment by the interest rate. In this case, the annual interest payment is $1,000 and the interest rate is 12.5%, so the maximum price would be $1,000/0.125 = $8,000. Therefore, the best choice is B.

A Few Years Ago, You Bought a Bond with No