3. To fund its wars against Napoleon, the British government sold consol bonds. They were referred to as “perpetuities”

because they would pay £3 every year in perpetuity (forever).

If a citizen could purchase a consol for £25, what would its annual interest rate be? What if the price were £50? £100?

Bonds are known as “fixed income” securities because the future payments that they will make to investors are fixed by the bond agreement in advance. Do the interest rates bonds and other investments that offer fixed future payments vary directly or inversely with their current prices? [LO18.4]