The bonds of the Lange Corporation are perpetuities with a 10 percent coupon. Bonds of this type currently yield 8 percent, and their par value is $1,000.
a. What is the price of the Lange bonds?
b. Suppose interest rate levels rise to the point where such bonds now yield 12 percent. What would be the price of the Lange bonds?
c. At what price would the Lange bonds sell if the yield on them was 10 percent?
d. How would your answers to parts (a), (b), and (c) change if the bonds were not perpetuities but rather had a maturity of 20 years?

  • CreatedNovember 24, 2014
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