Answer the question on the basis of 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.If the price of this bond falls by $200, the interest rate 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

The bond's initial yield is 10% ($100/$1000). If the price falls to $800, the new yield is $100/$800 = 12.5%. The interest rate rises by 2.5 percentage points (12.5% - 10%).

Answer the Question on the Basis of the Following Information