A bond traded at 102 1% means that: A. The bond pays 2.5% interest. B. The bond traded at $1,025 per $1,000 bond. C. The market rate of interest is 2.5%. D. The bonds were retired at $1,025 each. E. The market rate of interest is 2 % above the contract rate.

A bond traded at 102 1/2 means that the bond traded at $1025 per $1000 bond.

Explanation -

$1000 is par value of bond. Market price or trading price of the bond is 102 1/2% of the par value of the bond.

Par value of the bond is represented as 100%. The traded value of the bond is expressed as a percentage of par value of bond.

Or, we can say that, Market price of the bond is 2 1/2% more than the par value of the bond.

Par value of the bond = $1000

Market value of bond = $1000 × 102.5%

= $ 1025

OR,

$1000 + 2.5% = $1025.

Therefore, B is the correct answer.