Question

A consol paying $20 annually when the interest rate is 5 percent has a price of

Answer 1

Answer:  $ 400 .
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Explanation:
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Note that a "consol" is a "perpetuity".
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To find the "PV" (Present Value) of a perpetuity, we use the equation:   PV = C / r  = Current value / interest rate
         
       = $20 / (5%) = $20 / (5/100) = $20 / (0.05) =  $400 .
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