Multiple Choice
Suppose that a bond promises to pay its holder $100 a year forever. If the price of the bond increases from $1,000 to $1,250, then the interest rate on the bond
A) falls from 10 percent to 8 percent.
B) falls from 10 percent to 6 percent.
C) rises from 8 percent to 10 percent.
D) does not change because it is not affected by the price of the bond.
Correct Answer:
Verified
Correct Answer:
Verified
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