Refer to the given information. If the price of this bond falls by $200, the interest rate will:

Answer the question on the basis of the following information for a bond having no expiration
date: bond price = $1,000; bond fixed annual interest payment = $100; bond annual interest
rate = 10 percent.

A.  rise by 2.5 percentage points.
B.  rise by 5 percentage points.
C.  fall by 2.5 percentage points.
D.  fall by 5 percentage points.

ANSWER

A.  rise by 2.5 percentage points.