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 $90 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 10%. What should this consol bond sell for in the market? What if the interest rate should fall to 9%? Rise to 11%? 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 10%, what should this bond sell for in the market? $ (Round to the nearest cent.)
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 $90 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 10%. What should this consol bond sell for in the market? What if the interest rate should fall to 9%? Rise to 11%? 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 10%, what should this bond sell for in the market? $ (Round to the nearest cent.)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text: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 $90 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 10%. What should this consol bond sell for in the market? What if the interest rate should fall to 9%?
Rise to 11%? 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 10%, what should this bond sell for in the market?
(Round to the nearest cent.)
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