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

$60 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 is5%.

What should this consol bond sell for in the market? What if the interest rate should fall to 4%? Rise to 6%?

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 5%, what should this bond sell for in the market?