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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 $50 in interest each year (at the end of the year), but it will never return the principal. The current discount rate for Canadian government bonds is 6.5%. What should this consol bond sell for in the market? What if the interest rate should fall to 4.5%? Rise to 8.5%? Why does the price go up when interest rates fall? Why does the price go down when interest rates rise? If the current discount rate for Canadian government bonds is 6.5%, what should this bond sell for in the market? $ (Round to the nearest cent.) If the interest rate falls to 4.5%, what should this bond sell for in the market? $ (Round to the nearest cent.) If the interest rate rises to 8.5%, what should this bond sell for in the market? $ (Round to the nearest cent.) Why does the price go up when interest rates fall and down when interest rates rise? (Select the best response.) A. When the interest rate becomes larger (smaller), the present value of each payment becomes smaller (larger) and the total present value of the perpetuity decreases (increases). B. When the interest rate becomes larger (smaller), the payment at the end of each period becomes smaller (larger) and the total present value of the perpetuity decreases (increases). C. When the interest rate becomes larger (smaller), the discounting period for each payment becomes shorter (longer) and the total present value of the perpetuity decreases increases). D. When the interest rate becomes larger (smaller), the future value of each payment becomes smaller (larger) and the total present value of the perpetuity decreases (increases)
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