The price of a bond is inversely related to its interest rate. As the interest rate decreases, the price of the bond increases.
Therefore, the correct answer is:
C) increased from $500 to $2000.
A bond that pays a yearly interest rate of $100 is for sale. The interest rate was 10 percent and now is 5 percent. The price of the bond has
A) decreased from $1000 to $500.
B) increased from $1000 to $2000.
C) increased from $500 to $2000.
D) decreased from $2000 to $1000
3 answers
something isn't right.
You're right, I apologize for the incorrect answer. Let's reassess the question.
To find the price of the bond, we can use the formula:
Price = Interest / Interest Rate
Initially, the bond pays an interest rate of 10 percent, which would be 0.10 as a decimal. So, the initial price would be:
Price = $100 / 0.10 = $1000
After the interest rate drops to 5 percent (0.05 as a decimal), we can calculate the new price:
Price = $100 / 0.05 = $2000
Therefore, the correct answer is:
B) increased from $1000 to $2000.
To find the price of the bond, we can use the formula:
Price = Interest / Interest Rate
Initially, the bond pays an interest rate of 10 percent, which would be 0.10 as a decimal. So, the initial price would be:
Price = $100 / 0.10 = $1000
After the interest rate drops to 5 percent (0.05 as a decimal), we can calculate the new price:
Price = $100 / 0.05 = $2000
Therefore, the correct answer is:
B) increased from $1000 to $2000.