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Amy owns a perpetual bond with yearly payments of $4725. The discount rate for this bond...

Amy owns a perpetual bond with yearly payments of $4725. The discount rate for this bond is 0.071. What is a fair price for Amy's bond?

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Answer #1

For a perpetual bond,

PV of Perpetuity = – PV = Present Value D = Dividend or Coupon per period r = discount rate

PV = 4725 0.071

PV = $66,549.30

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