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Perpetual bond, which is also known as a perpetual or just a perp, is a bond with no maturity date. Issuers pay coupons on perpetual bonds forever, and they do not have to redeem the principal. Perpetual bond cash flows are, therefore, those of a perpetuity.
A perpetual bond pays coupons of 4% every year on a face value of $1,000. The rate of return on the bond is 9.30% every year. What is the price of the bond?
Hint: Use the perpetuity formula. Remember the rate of discount and rate of return are one and the same thing.
The required rate of return on similar issues of preferred stock is 6%. What is the market price of your preferred stock?
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