The following information for a bond having no expiration date: bond price = $1,000;bond fixed annual interest payment = $100;bond annual interest rate = 10 percent.
-Refer to the above information.If the price of this bond falls by $200,the interest rate in effect will:
A) rise by 2.5 percentage points.
B) rise by 5 percentage points.
C) fall by 2.5 percentage points.
D) fall by 5 percentage points.

Question

Quizplus · Accepted Answer

If the bond price falls to $800, the interest payment of $100 on the new price results in an interest rate of 12.5% ($100/$800), which is a rise of 2.5 percentage points from the original 10%.

The Following Information for a Bond Having No Expiration Date