Although perpetual bonds are illegal in the United States, sometimes it is easiest to assume that interest

Question:

Although perpetual bonds are illegal in the United States, sometimes it is easiest to assume that interest payments last forever to show some simple results based on Equation. Use that equation to show the following:
$X = $1/ i
a. Assuming no inflation, the value of a bond that pays $10 per year is $200 with a real rate of interest of 5 percent.
b. If inflation is 3 percent per year and interest payments rise at that rate, the current value of the perpetual bond is still $200.
c. If inflation is 3 percent per year and the bond's payments are fixed at $10, that the current value of the perpetual bond is $125 can be shown in two ways:
i. By assuming that the nominal rate of interest is 8 percent and using that rate for discounting
ii. By adjusting the $10 payment for inflation in each period and using a real of 5 percent.

Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...