Answer the next 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%. If the price of this bond falls by $200, the interest rate will .a. fall by 2.5 percentage points.
b. rise by 5 percentage points.
c. fall by 5 percentage points.
d. rise by 2.5 percentage points.

If the price of this bond falls by $200, the interest rate will

d. rise by 2.5 percentage points.

Explanation:

Bond price = $1,000; bond fixed annual interest payment = $100; bond annual interest rate = 10%. If the price of this bond falls by $200, the interest rate will rise by 2.5 percentage points.Bond valuation is the determination of the fair price of a bond. the theoretical fair value of a bond is the present value of the flow of cash that streams in it is expected time to generate.In order to calculate the bond price, one has to simply discount the known predict flow of cash.When investors get anxious, they buy government bonds. Governments usually pay back their debts, so those bonds are at safety.You can also lose money on a bond if you sell it before the maturity date for less than you paid or if the issuer pays on their payments.

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