If a Bond Pays a Fixed Return of $500 a Year

question 137

Multiple Choice

If a bond pays a fixed return of $500 a year and the current interest rate has risen from 5 percent to 10 percent, then the bond price must have:

• A)risen from $25 to $50.
• B)fallen from $50 to $25.
• C)risen from $5, 000 to $10, 000.
• D)fallen from $10, 000 to $5, 000.
• E)risen from $1, 000 to $5, 000.

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Definitions:

Contribution Margin Ratio

A financial metric that indicates the portion of sales revenue that exceeds variable costs and contributes to covering fixed costs and generating profit.

Fixed Costs

Costs that remain constant regardless of the amount of goods produced or sold, including expenses like rent, wages, and insurance.

Unit Variable Cost

The cost that varies directly with the production volume, defined per unit of production.

Sensitivity Analysis

An approach to assess how different values of an independent variable can affect a particular dependent variable under a given set of assumptions.