Suppose a bond with no expiration date has a face value of $25,000 and annually

Question

Suppose a bond with no expiration date has a face value of $25,000 and annually pays a fixed amount on interest of $1,500. Compute and enter in the spaces provided either the interest rate that the bond would yield to a bond buyer at each of the bond prices listed or the bond price at each of the interest yields shown.
(Bond prices: Round them to two decimal places, do not type the dollar sign ($) nor use commas to separate the thousands. Interest yield: Round to one decimal place)

Bond Price Interest Yield (%)
20000 x
x 6.4%
25000 x
x 5.5%
30000 x

Explanation / Answer

annuity with infinite life are called perpetuity. their PV = PMT/interest rate (face value have no role to play in them) 1) PV =20000, so interest rate = 0.075= 7.5% 2)PV = 1500/0.064 = 23437.5 3) I = 6% 4) PV = 27272.727 5) I = 5%

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