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European government decided to issue a consol (a bond with never-ending interest payment and no maturity date). The bond will pay 60 in interest each
European government decided to issue a consol (a bond with never-ending interest payment and no maturity date). The bond will pay 60 in interest each year (at the end of the year), but it will never return the principal. The current discount rate for the government bonds is 5.4%. What should this consol bond sell for the market? What if the discount should increase to 6.3%? Based on your answers, what is the relationship between discount rate and bond price? (3 points)
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