A bond's perpetuities are 10 percent coupon, bonds of this type currently yield 8 percent and their par value is 1,000 - what is the price of the bonds

In order to find the price of the bond that is perpetuities, you need to use the following equation:

PV(perpetuity) = Payment/Interest rate

Where payment is the coupon payment
Interest rate is the discount or yield rate

PV = (1,000 x 0.10)/0.08
PV = 1,250

If the bonds were not a perpetuities, then we need to calculate how much the bonds have been issued by using the formula as follows: -

where B is the issued price
C is the coupon payment
r is the discount or yield rate
n is the period

Then, we can replace the information into the equation. Coupon payment is equal to $1,000 x 10% = 100)

The issued price of the bond is equal to

B = 100 x [1 - 1 ] + 1,000
(1.08)20 (1.08)20
0.08

B = 100 x 9.8181 + 1,000 x 0.2145
B = 1,196.31.

please see the attached file.