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    Value of perpetuity

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    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.)

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    Solution Summary

    Value of perpetuity is determined.