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Perpetuities. The Canadian Government has once again decided to issue a consol (a bond with a never-ending interest payment and no maturity date). The bond
Perpetuities. The Canadian Government has once again decided to issue a consol (a bond with a never-ending interest payment and no maturity date). The bond will pay $70 in interes each year (at the end of the year), but it will never return the peincipal. The cuirent discount rate for Canadian govemment bonds is 10.5%. What should this consol bond seif for in the market? What if the interest rate should fall to 9.5% ? Rise to 11.5% ? Why does the price go up when interest rates fall? Why does the price go down when interest fates rise? If the current discount rate for Canadian government bonds is 10.5%, what should this bond sell for in the maket? (Round to the nearest cent)
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