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    Bonds that pay interest forever

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    A bond that pays interest forever and has no maturity is a perpetual bond. In what respect is a perpetual bond similar to a no-growth common stock? Are there preferred stocks that are evaluated similarly to perpetual bonds and other preferred stocks that are more like bonds with finite lives? Explain.

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    A perpetual bond is similar to a no-growth common stock as both pay a fixed amount and no-growth common stock's dividend is expected to remain constant or fixed over time and perpetual bonds carry a fixed amount of discount rate. Additionally, the payment amount on both securities is also constant. The formula for a perpetuity is simply the current dividend divided by the discount rate:

    Vp = Dp / ...

    Solution Summary

    The solution determines if there is a bond that pays interest forever and has no maturity. Preferred stocks that are evaluated similarly to perpetual bonds are examined.

    $2.19

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