Suppose the Interest Rate on a Bond Is 12

Multiple Choice

Suppose the interest rate on a bond is 12.5 percent and that bond pays $90 a year in interest and sells for $720.If the supply of bonds increases and the price of the bond falls to $600, the interest rate will ____ to ____.

A) increase;15 percent
B) increase;17.5 percent
C) decrease;7.5 percent
D) decrease;10 percent
E) increase;13 percent