What is the price of a perpetuity that has a coupon of $20 per year and...
What is the price of a perpetuity that has a coupon of $20 per year and a yield to maturity of 5%? If all of the coupons double, what will happen to its price?
Homework Answers
Price of perpetuity with coupon rate $20 per year and yield to maturity of 5% = coupon rate/yield to maturity
= 20/0.05
= $400
If all the coupons double with YTM remaining same, the price will also double
= 40/0.05
=$800
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