question archive You own a bond issued by the Canadian Pacific railroad that promises to pay the holder $1552 annually forever
You own a bond issued by the Canadian Pacific railroad that promises to pay the holder $1552 annually forever
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You own a bond issued by the Canadian Pacific railroad that promises to pay the holder $1552 annually forever. The bond is currently selling for 15520. You plan to sell the bond 3 years from now. If similar investments yield 6% at that time, how much will the bond be worth?
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Answer:
Canadian pacific railroad is paying $ 1,552 annually forever. That means it is a perpetual bond.
Yield of similar investment = 6%
Value of a perpetual bond = Annual Interest amount / Discount rate
= 1,552 / 6%
= $ 25,866.67
Hence the worth of bond will be $ 25,866.67
