If the dollar price of a bond is $4,000 and its par value is $4,250,the interest rate is equal to:

Question

Quizplus · Accepted Answer

The formula for calculating the interest rate on a bond is: 
Interest rate = (annual coupon payment / bond price) x 100%
The annual coupon payment is the percentage of the par value that the bond pays out annually. Since we do not have this information, we cannot use this formula to calculate the interest rate. However, we can use the following formula: 
Interest rate = (par value - bond price) / bond price
Using the information given in the question: 
Interest rate = ($4,250 - $4,000) / $4,000 = 0.0625 or 6.25%
Therefore, the best choice is D.

If the Dollar Price of a Bond Is $4,000 and Its