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What is the price of a perpetuity that has a coupon of $70 per year and a yield to maturity of 2.5%? The price of the perpetuity is $ 2800 (Enter your response rounded to the nearest whole number.) if the yield to maturity triples, what will happen to its price? The new price is(Enter your response rounded to the nearest whole number.)
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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 yield to maturity will be 7.5% (2.5% * 3) , the price of perpetuity will come down by 3 times.

70 / 7.5% = 933.33

the price of perpetuity will be $933

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