Calculate present value of the bond as follows:
Present value = amount/(rate*(1+rate)^4)
Present value = 900/(11%*(1+11%)^4)
Present value = 5390
Answer:D
15) A perpetuity will pay $900 per year, starting five years after the perpetuity is purchased....
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A perpetuity that begins in 2 years will pay a coupon $10/year and is scheduled to be priced at $200. What is the current value of the instrument if the 2 year interest rate is 7%? What is the interest rate of the perpetuity?
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