Making the assumption of no compounding interest, suppose you purchase a perpetuity bond from CosoNostra Pizza Inc.
Question:
Making the assumption of no compounding interest, suppose you purchase a perpetuity bond from CosoNostra Pizza Inc. for $3,000 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.
1) What is the yearly return on your $3,000 investment?
$__________________
2) 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?
Price of bond $_____________________
3) 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?
Price of bond $_____________________
Please explain calculations for this problem.