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 increases to $1,250, the interest rate in effect will:
A)fall to 9 percent.
B)fall to 8 percent.
C)rise to 11 percent.
D)rise to 12 percent.

Question

Quizplus · Accepted Answer

The interest rate is calculated as the annual interest payment divided by the bond price. If the bond price increases to $1,250, the interest rate becomes $100 / $1,250 = 0.08 or 8 percent.

The Following Information for a Bond Having No Expiration Date