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Paola Pays $10,000 for a One-Year Bond with an Original

Question 113

Multiple Choice

Paola pays $10,000 for a one-year bond with an original value of $10,000 and a single fixed payment of $800 at the end of the year. During the year, Paola unexpectedly needs cash. She sells the bond to Parminder, at the market price of the bond which fell to $8,000. If Parminder keeps the bond to the end of the year, the interest rate on his investment is


A) 80 percent.
B) 8 percent.
C) 10 percent.
D) 100 percent.
E) higher than interest rates on similar bonds at the end of the year.

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