Respuesta :
The current market Interest rate will be equal to 16%.
A bond may be defined as the security instruments or debt security which are similar to loans and are made to the issuer on several terms and conditions to pay the principles of the bond on the date of maturity along with the interest earned over it in a specific period of time. This question can be solved by using formula of Interest rate. There is a need to figure out the price of bond when it is purchased. Let us assume the bond price as $x. Since the bond has initial interest rate of 25%, the following situation must be true, that is
[($10,000 - $x) ÷ $x] × 100 = 25.
On Solving the above expression, the value of x = $8,000.
So, the bond price was $8,000 when the interest rate was 25%. Since the price of bond increased by $600, the new bond price must be $8,600. This might have happened due to a decline in the interest rate. Now, we use the formula for interest rate that is
R = [(Face value - new bond price) ÷ new bond price] × 100
R = [($10,000 - $8,600) ÷ $8,600] × 100 = 16%.
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