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What is opportunity cost of funds

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Reference no: EM132232314

1. Assume that you have inherited a perpetual bond that pays $1000 annually.

a. If you accepted $30,000 today in exchange for the bond, what is your opportunity cost of funds?

b. Assume that the opportunity cost of funds increases to 8%, what happens to the present value of the bond?

c. Using the information in (a) and (b), why does the present value of the bond increase (decrease) when the opportunity cost of funds rises (falls) from (a) to (b)?

Reference no: EM132232314

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