Tom owns a bond that promises to pay its holder $100 a year forever. If the interest rate on the bond rises from 4 percent to 5 percent, what happens to the price of the bond?

Question

Accepted Answer

It falls from $2,500 to $2,000.

Answer

It rises from $20,000 to $25,000.

Answer

It falls from $25,000 to $20,000.

Answer

It rises from $2,000 to $2,500.

Answer

It does not change because bond prices are constant.

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Tom owns a bond that promises to pay its holder $100 a year forever. If the inte...

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