The interest rate for a $1,000 bond is 6 percent.If comparable bonds are paying 8 percent, what is the approximate market value for the 6 percent bond?
A)$1,000
B)$800
C)$750
D)$600
E)$500

Question

Quizplus · Accepted Answer

The market value of the 6 percent bond would decrease because it pays less interest than the comparable bonds paying 8 percent. To find the approximate market value, you can set up a proportion where the interest payments are proportional to the market value. If $1,000 is to 6 percent as X is to 8 percent, then $60 (the interest from the 6 percent bond) is to X as $80 (the interest from an 8 percent bond) is. Solving for X gives a value around $750, making the bond's market value approximately $750.

The Interest Rate for a $1,000 Bond Is 6 Percent