The Price of a Bond with No Expiration Date Is

question 299

Multiple Choice

The price of a bond with no expiration date is originally $1,000 and has a fixed annual interest payment of $150. If the price of the bond then falls by $100, what will be the interest rate yield to a new buyer of the bond?

• A) 17.8 percent
• B) 16.7 percent
• C) 15 percent
• D) 11.2 percent

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Definitions:

Par Value

The face value of a bond or the stated value of a stock, not necessarily its market value.

Common Stock

Equity security representing ownership in a corporation, providing voting rights and a share in profits through dividends.

Paid in Excess

Funds received by a company over and above the par value of its stock, often recorded as additional paid-in capital on the balance sheet.

Retained Earnings

Profits that a company retains for reinvestment in its operations, rather than distributing to shareholders as dividends.