Suppose a bond with no expiration date has a face value of $10,000 and annually pays a fixed amount of interest of $900.
a. In the table provided below, calculate and enter either the interest rate that the bond would yield to a bond buyer at each of the bond prices listed below or the bond price at each of the interest yields shown.
Bond price Interest Yield,%
$ 8,500
$ 9.47%
$ 10,500
$ 11,500
$ 6.67%
b. What generalization can be drawn from the completed table?
- Bond prices and interest rates are not related.
- Bond prices and interest rates are directly related.
- Bond prices and interest rates are inversely related.
- There is insufficient data to make a generalization.