2. You are considering purchasing a consol that promises annual paymen

QUESTION

2. You are considering purchasing a consol that promises annual payments of $4.a. If the current interest rate is 5 percent, what is the price of the consol?b. You are concerned that the interest rate may rise to 6 percent. Compute the percentage change in the price of the consol and the percentage ¦
Price of Consol=Payment/Interest Rate So, in this case the price of the consol =4/0:05= $80 ============================================= If the interest rate of rises to 6 percent, the price of the consol would change to 4/0:06== $66:67 In percentage terms the interest¦

rate has increased by 0:06 “ 0:05 /0:05 x 100% = 20% and the price has changed by 66:67 80/80 x 100% = “ 16:67% The interest rate increases by more than what the price drops by.

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