Making the assumption of no compounding interest, suppose you purchase a perpetu

Question

Making the assumption of no compounding interest, suppose you purchase a perpetuity bond from Lateralus Inc. for $4,000 with an annual coupon rate of 3%. Specify all answers to the nearest dollar, and assume a discount rate equal to that of the current interest rate. What is the yearly return on your $4,000 investment?Changes in the economy push interest rates up from 3% to 5%. For how much can you sell your bond following this change in market interest rates?Suppose that interest rates instead change from 3% to 1%. For what price will you be able to sell your bond following this change in market interest rates?

Explanation / Answer

1. 4000*.03= 120

2. 120/.05= 2,400

3. 120/.01= 12,000

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