The British government has a consol bond outstanding that pays 100 in
QUESTION
The British government has a consol bond outstanding that pays 100 in interest each year. Assuming that the current interest rate in Great Britain is 5% and that you will receive your first interest payment one year from now, then the value of the consol bond is closest to:11)______A)2
According to the given information,Current yield = 5%Annual interest payment = 100We know that the formula for calculating the Current yield is Currnet yield = Annual interest payment / Current price of the bond Substituting the values in the above formula, we
get 0.05 = 100 / Current price of the bond Current price of the bond = 100 / 0.05 = 2000Therefore, the current price of the bond is 2000The correct option is A) 2000
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