Suppose a Bond Promises to Pay Its Holder $100 a Year

Multiple Choice

Suppose a bond promises to pay its holder $100 a year forever. The interest rate on the bond rises from 4 percent to 5 percent. The price of the bond

A) falls from $2,500 to $2,000.
B) falls from $25,000 to $20,000.
C) rises from $2,000 to $2,500.
D) rises from $20,000 to $25,000.
E) does not change. Bond prices are constant.