Perpetual Life Corp. has issued consol bonds with coupon payments of $105. (Consols pay interest forever and never mature. They are perpetuities.)

Perpetual Life Corp. has issued consol bonds with coupon payments of $105. (Consols pay interest forever and never mature. They are perpetuities.)

a. If the required rate of return on these bonds at the time they were issued was 10%, at what price were they sold to the public?


b. If the required return today is 12%, at what price do the consols sell?


Explanation
Some values below may show as rounded for display purposes, though unrounded numbers should be used for actual calculations. 

a.

PV	=	C / r
	=	$105 / 0.10
	=	$1,000

b.

PV	=	C / r
	=	$105 / 0.10
	=	$875