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Homework answers / question archive / Jules is considering how much she should be willing to pay for a perpetual bond
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
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".
