The price of a bond with no expiration date is originally $1,000 and has a ﬁxed annual interest payment of $150. If the price of the bond then falls by $100, what will be the interest rate yield to a new buyer of the bond?
A) 17.8 percent
B) 16.7 percent
C) 15 percent
D) 11.2 percent

Question

Quizplus · Accepted Answer

The bond's original price was $1,000, and it paid $150 annually. This means the original yield was 15% ($150/$1,000).

If the price of the bond falls by $100, the new price is $900. To calculate the new yield, divide the annual interest payment ($150) by the new price ($900) and multiply by 100 to get a percentage:

($150/$900) x 100 = 16.7%

Therefore, the answer is choice B, 16.7 percent.

The Price of a Bond with No Expiration Date Is