If the dollar price of a bond is $7,500 and the par value of the bond is $8,000,the interest rate is equal to:

Question

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To calculate the interest rate, we need to find the coupon rate which is the annual interest payment divided by the par value of the bond. Since we do not have the annual interest payment, we can use the fact that the bond is selling at a discount (the price is less than the par value) to calculate the approximate coupon rate.

Discount = Par value - Price
Discount = $8,000 - $7,500
Discount = $500

The discount represents the total amount of interest earned over the life of the bond (since the bond is selling at a discount, the buyer will earn more interest than the stated coupon rate). We need to find the interest rate that will result in a discount of $500.

Discount = (Coupon rate) x (Par value) x (Time)
$500 = (Coupon rate) x $8,000 x 1
Coupon rate = $500 / $8,000
Coupon rate = 0.0625 or 6.25%

Therefore, the answer is B, 6.67%.

If the Dollar Price of a Bond Is $7,500 and the Par