Purchase Solution

Value of perpetuity

Not what you're looking for?

Ask Custom Question

Suppose that interest rates are 6 percent in the economy and a safe bond promises to pay $3 per year in interest forever. What do you think the price of the bond will be? Why?
Suppose that in this economy interest rates suddenly fall to 3 percent. What will happen to the price of the bond that pays $3 per year? (See attachment for other questions.)

Attachments
Purchase this Solution
Solution Summary

Value of perpetuity is determined.

Purchase this Solution
Free BrainMass Quizzes
Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.

Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.

Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.

Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.

View More Free Quizzes
Related BrainMass Solutions

  • Calculate the Present Value of a Perpetuity

    337973 Calculate the Present Value of a Perpetuity What is the present value of a perpetuity of $100 per year if the appropriate discount rate is 7%?

  • Ordinary Annuity and Perpetuity

    of perpetuity= Perpetuity value stream/Discount rate =180000/.04 =$4500000 Hence Present value of Perpetuity and annuity will be different.

  • Time Value

    If you use a 9 percent discount rate for investment products, what is the present value of this growing perpetuity? The present value of a Perpetuity is found through simple division.

  • Present Value of a Growing Perpetuity

    This solution explains the present value of a specific growing perpetuity.

  • Multiple Choice - Time Value of Money

    The present value and future value of an annuity due is higher than the value of an ordinary annuity. 9. For a perpetuity that is assumed to grow at a constant rate (g), what will the present value of perpetuity approach as g approaches zero?

  • Multiple Choice

    The dividends are a perpetuity. The present value of a perpetuity is given as cash flow/discounting rate Price per share = 2.8/7.5% = $37.33 3.

  • Value of a Perpetuity: Annual Payment and Discount Rate

    504929 What is the value of a perpetuity with an annual payment of $100 and a discount rate of 6%? What is the value of a perpetuity with an annual payment of $100 and a discount rate of 6%? A perpetuity is an infinite stream of cash flow.

  • perpetuity

    206404 Calculating the Present Value of a Perpetuity You are willing to pay $15,625 to purchase a perpetuity which will pay you and your heirs $1,250 each year, forever.

  • streams of payments

    So first calculate the value of perpetuity starting next year and then bring it back to this year.

  • Calculating Worth of a contract and Perpetuity

    Interest rate=10% Periodic receipt=$20000 Present Value of perpetuity=R/i=20000/0.1=$200,000 Cost of such perpetuity will be $200,000 c.

View More Related Solutions