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Price of a Bond with Maturities and Perpetuities

A bond's perpetuities are 10 percent coupon, bonds of this type currently yield 8 percent and their par value is 1,000 - what is the price of the bonds. Please show me how to compute this without the use of a financial calculator. Also can you tell me how this would change if the bonds were not a perpetuities but instead had a maturity of 20 years.

Solution Preview

In order to find the price of the bond that is perpetuities, you need to use the following equation:

PV(perpetuity) = Payment/Interest rate

Where payment is the coupon payment
Interest rate is the ...

Solution Summary

This solution is comprised of a detailed calculation to find price of a bond.