Let's denote the price of a nonmaturing bond (called a consol) as P. The equation that indicates this price is Pn =-, where I is the annual net income the bond generates and r is the nominal market interest rate.a. Suppose that a bond promises the holder $200 per year forever. The nominal market interest rate is 6 percent. Calculate the bond's current price: S. (Round your answer to the nearest whole dollar.)

Information Provided: Interest rate = 6% Payment = $200

Answered: Suppose that a bond promises the holder…

Suppose that a bond promises the holder $200 per year forever. The nominal market interest rate is 6 percent. Calculate the bond's current price: S. (Round your answer to the nearest whole dollar.)

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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Let's denote the price of a nonmaturing bond (called a consol) as P. The equation that indicates this price is Pn =-, where I is the annual net income the bond generates and r is the nominal market interest rate.
a. Suppose that a bond promises the holder $200 per year forever. The nominal market interest rate is 6 percent. Calculate the bond's current price: S. (Round your answer to the nearest whole dollar.)

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