Elena owns a Canada Savings Bond with a a price of $5,000, which pays $500 per year. The price of the bond rises in the bond market to $7,500. What is the new interest rate on the bond?

Question

Quizplus · Accepted Answer

The initial interest rate on the bond is calculated as follows:

Interest rate = Annual interest payment / Price of the bond

Thus, the initial interest rate is: 
Interest rate = $500 / $5,000 = 0.1 or 10%

After the bond price rises to $7,500, the new interest rate can be calculated as:

New interest rate = Annual interest payment / New price of the bond

New interest rate = $500 / $7,500 = 0.0667 or 6.67%

Therefore, the answer is B) 6.67 percent.

Elena Owns a Canada Savings Bond with a A Price