QUESTION 5 What is the interest rate on a perpetuity that pays a $1,000 annual coupon...

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QUESTION 5 What is the interest rate on a perpetuity that pays a $1,000 annual coupon payment and costs $25,000? (do not conv

Answer 1

Answer #1

Initial cost of a perpetuity, P = $25,000

Annual coupon payment, A = $1,000

We know that

(A/P, i,∞) = i

=> i = A/P

=> i = $1,000/$25,000

=> i = 0.040

Ans: 0.040

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Answer 2

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