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How much would you pay for a perpetual bond that pays an annual coupon of $80 per year and yields on competing instruments ar
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Ans. You would have to pay in case of perpetual bond = $80/0.05 = $1600

When the yield changes to 15%, we would have to pay = $80/0.15 = $533.33

Thus, capital gain = $1600 - $533.33 = $1066.67

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