Question

5) A consol paying $20 annually when the interest rate is 5 percent has a price of 5) _____ A) $100. B) $200. C) $400. D) $800.

Answer 1

Answer:

Option (C) $400

Explanation:

Data provided in the question:

Amount paid by the consol annually = $0

Interest rate = 5 percent = 0.05

Now,

The price of the consol will be calculated using the relation    

Amount paid = Price of consol × Interest rate

Thus,

$20 = Price of consol × 0.05

or

Price of consol = $20 ÷ 0.05

or

Price of consol = $400

Hence,

Option (C) $400