# Process Followed by Bond Price

Suppose that x is the yield on a perpetual government bond that pays interest at the rate of 1$ per annum. Assume that x is expressed with continuous compounding, that interest is paid continuously on the bond, and that x follows the process:

dx = a(x(0) - x) dt + sx dz

Where a, x(0), and s are positive constants, and dz is a wiener process:

1) What is the process followed by the bond price?

2) What is the expected instantaneous return(including interest and capital gains) to the holder of the bond?

https://brainmass.com/business/bond-valuation/process-followed-bond-price-461626

#### Solution Summary

The solution provides the process followed by bond price.

$2.19