Describe and explain the relationship between the price of bonds and the interest rate
What will be an ideal response?
There is an inverse relationship between the price of a bond and the interest rate. If a bond pays interest of $100 a year and the price of the bond is $1000, the interest rate is 10 percent. If the interest rate falls to 5 percent, then the price of a bond paying $100 a year interest would rise to $2000. The interest rate is the amount of interest paid per year divided by the price of the bond, so the interest rate and the price of the bond are inversely related.
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What are the major reasons a multinational corporation would engage in Foreign Direct Investment (FDI)?
What will be an ideal response?
If the bank advertises 6 percent annual interest rate on a one-year certificate of deposit and you anticipate the rate of inflation to rise to 3 percent during the year, then the real rate of interest on the certificate of deposit is
A) 9 percent. B) 6 percent. C) 3 percent. D) 2 percent.