A perpetuity bond is a coupon bond with infinite maturity. The price-yield relation for the perpetuity bond is P = C/y where P is the price, C the coupon rate and y the yield. Consider two perpetuity bonds, a 4s and a 3s. If the 4s is yielding 5%, what should the yield for the 3s be to exclude arbitrage opportunities?

Answer rating: 100% (QA)

1 Calculate the Price of the 4s Perpetuity Bond The 4s perpetuity bond ... View the full answer