Let's denote the price of a nonmaturing bond (called a consol) as Pb. The equation that indicates

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Let's denote the price of a nonmaturing bond (called a consol) as Pb. The equation that indicates this price is Pb = I/r, where I is the annual net income the bond generates and r is the nominal market interest rate.

a. Suppose that a bond promises the holder $500 per year forever. If the nominal market interest rate is 5 percent, what is the bond's current price?

b. What happens to the bond's price if the market interest rate rises to 10 percent?

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Economics Today

ISBN: 978-0132554619

16th edition

Authors: Roger LeRoy Miller

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Question Posted: Aug 01, 2016 12:43 PM

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Let's denote the price of a nonmaturing bond (called a consol) as Pb. The equation that indicates

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