Jules is considering how much she should be willing to pay for a perpetual bond

Finance Oct 22, 2020

Jules is considering how much she should be willing to pay for a perpetual bond. Given the following information, what should Jules be willing to pay for this perpetual bond?

Coupon rate: 6%

Value: $1,000

Required Rate of Return: 10%

Coupon Frequency: Annual

A) $300

B) $500

C) $600

D) $1,000

Expert Solution

Computation of Price of Bond:

Price of Bond = Coupon / Yield

Here,

Coupon = Annual Coupon Payment = $1,000*6% = $60

Yield = Required Rate of Return = 10%

Price of Bond = $60/10% = $600

Jules will be willing to pay $600 for this perpetual bond. So, the correct option is C "$600".

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