### Calculating Bond Interest Rate**Question:**How much is the interest rate on a bond that has a face value of $1,000, a selling price of $800, and that pays $80 interest?**Explanation:**To determine the interest rate, or yield, of a bond, we need to understand the relationship between its annual interest payment and its selling price.**Interest Rate Formula:**The interest rate can be calculated using the following formula:\[ \text{Interest Rate} = \left( \frac{\text{Annual Interest Payment}}{\text{Current Price of the Bond}} \right) \times 100\% \]**Given:**- Face Value of the Bond: $1,000- Selling Price of the Bond: $800- Annual Interest Payment: $80**Calculation:**Plug these values into the formula to find the interest rate:\[ \text{Interest Rate} = \left( \frac{80}{800} \right) \times 100\% = 10\% \]Therefore, the interest rate on this bond is **10%**. This indicates that the bondholder will earn a return of 10% on their investment at the current selling price of $800.

Answered: 5. How much is the interest rate on a…

5. How much is the interest rate on a bond that has a face value of $1,000, a selling price of $800, and that pays $80 interest?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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