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The Canadian Government has once again decided to issue a consol (a bond with a never...

The Canadian Government has once again decided to issue a consol (a bond with a never ending interest payment and no maturity date). The bond will pay $80 in interest each year (at the end of the year), but it will never return the principal. The current discount rate for Canadian government bonds is 7​%. What should this consol bond sell for in the​ market?

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Answer #1

The value of the console shall be : ( price for which it will sell in the market)

Value = Interest paid/ Discount rate

= $80/ 0.07

= $1142.8571

= $1142.86 ( rounded off to two decimal places)

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