British government 4% perpetuities pay 4 interest each year forever. Another bond, 2.5% perpetuities, pays 2.50 a

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British government 4% perpetuities pay £4 interest each year forever. Another bond, 2.5% perpetuities, pays £2.50 a year forever.

a. What is the value of 4% perpetuities if the long-term interest rate is 6%?

b. What is the value of 2.5% perpetuities?

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Fundamentals of Corporate Finance

ISBN: 978-1259722615

9th edition

Authors: Richard Brealey, Stewart Myers, Alan Marcus

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