What is the price of a perpetuity that has a coupon of S70 per year and...

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Question

business economics

Answer 1

Answer #1

ANSWER:

When yield to maturity was 2.5% then the price of perpetuity will be coupon payment divided by yield to maturity.

70 / 2.5% = 2800

When yield to maturity triples , that is ytm will be 7.5% (2.5% * 3) , so when this happens , the price of perpetuity will come down by 3 times.

70 / 7.5% = 933.33

so the price of perpetuity will be $933

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Answer 2

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