Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Perpetual bond, which is also known as a perpetual or just a perp, is a bond with no maturity date. Issuers pay coupons on perpetual
Perpetual bond, which is also known as a perpetual or just a perp, is a bond with no maturity date. Issuers pay coupons on perpetual bonds forever, and they do not have to redeem the principal. Perpetual bond cash flows are, therefore, those of a perpetuity.
A perpetual bond pays coupons of 6% every year on a face value of $1,000. The rate of return on the bond is 8.00% every year. What is the price of the bond?
Hint: Use the perpetuity formula. Remember the rate of discount and rate of return are one and the same thing.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started