5. OLL Ltd has just issued a perpetual (that is, non-maturing) financial security that is expected...

5. OLL Ltd has just issued a perpetual (that is, non-maturing) financial security that is expected to pay an annual coupon of $120 next year. This coupon will then decline at a rate of 2% per annum forever. If the interest rate on this security is 8% p.a., its price today should be closest to:

Group of answer choices

$1,200.

$1,500.

$2,000.

$6,000.

Expert Solution

Given,
Annual Coupon next year = $120
Interest rate on security = 8% p.a.

Today`s Price for Perpetual Financial Security would be = Annual Coupon / Interest Rate
= $120/8%
= $1,500
Hence among the group of answers the closest choice would be $1,500.

jeff jeffy answered 1 year ago

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