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Yesterday, 18:49

How much would you pay for a perpetual bond that pays an annual coupon of $100100 per year and yields on competing instruments are 2020 %? you would pay $ nothing. (round your response to the nearest penny. ) ?

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  1. Yesterday, 19:01
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    The present value of a perpetual bond is = annual coupon payment/discount rate

    The discount rate = yield = 20% = 0.2

    Annual coupon payment = $100

    Present value of the bond = 100/0.2 = 500

    So the present value of the bond is the value that you would end up paying for the bond.

    Hence you would pay $500.00 for a bond that pays an annual perpetual coupon of $100 with a yield of 20%
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