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During the Napoleonic Wars, Great Britain issued a large number of perpetual bonds to fund their...

During the Napoleonic Wars, Great Britain issued a large number of perpetual bonds to fund their military expansion, many of which are still outstanding today. One of these bonds has a face value of 394,309 pounds and a coupon rate of 0.037. The current YTM of long term British government debt is 0.015. How much would it cost the British government to retire this bond? Please give your answer in pounds. You may ignore taxes.

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Expert Solution

Price of Perpetual Bond = Annual Payment/Interest Rate

Annual Payment = 0.037(394,309) = $14,589.43

Price of Perpetual Bond = 14,589.43/0.015

Price of Perpetual Bond = $972,628.87

jeff jeffy answered 2 years ago
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