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Perpetuities. The Canadian Government has once again decided to issue a consol​ (a bond with a​...

Perpetuities. 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 $70 in interest each year​ (at the end of the​ year), but it will never return the principal.

A) If the current discount rate for Canadian government bonds is 10​%, what should this bond sell for in the​ market?

B) If the current discount rate for Canadian government bands would rise to 11%?

C) Why does the price go up when interest rates​ fall?

D) Why does the price go down when interest rates​ rise?

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A4 C. 1) 4 a Discount rate Price 0.1 7 b) Discount rate Price 0.11 10 c) The price of bond is the present value of future cash flows discounted at required rate of return. If the rate fall the 12 d) The price of bond is the present value of future cash flows discounted at required rate of return. If the rate increase 13 14 15 16 18 19

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