Asked by
Akash Thakur
on Oct 14, 2024
Verified
If the interest rate is r and will remain r forever, then a bond that will pay 75 dollars a year forever, starting one year from now, is worth how much today?
A) 75/(1 r) dollars.
B) 75(1 r) dollars.
C) 75/(1 r r2 ... r n ...) dollars.
D) 75/r dollars.
E) None of the above.
Interest Rate
The percentage of a sum of money charged for its use, often expressed as an annual percentage rate.
Bond
A fixed income investment in which an investor loans money to an entity (corporate or governmental) that borrows the funds for a defined period at a fixed interest rate.
- Probe into the impact of interest rate adjustments on the pricing strategy for bonds and perpetual securities.
- Evaluate investment opportunities in perpetuities and annuities.
Verified Answer
CR
Learning Objectives
- Probe into the impact of interest rate adjustments on the pricing strategy for bonds and perpetual securities.
- Evaluate investment opportunities in perpetuities and annuities.