The total return if competing yields are 8% is 35.00%
What is perpetual bond?
A perpetual bond is the one without a maturity date, hence, it would pay coupons annually forever, with $80 paid annually, the price of the bond in a year's time is annual coupon of $80 divided by the competing yield of 8%
price in one year=$80/8%
price in one year=$1,000
The total return in a year considers the initial purchase price of $800, the selling price as well as the coupon received over one year
total return=(selling price-purchase price+coupon)/purchase price
total return=($1000-$800+$80)/$800
total return=35.00%
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Prior questions:
How much would you pay for a perpetual bond that pays an annual coupon of $80 per year and yields on competing instruments are 10%?
You would pay $_____(Round your response to the nearest penny.)
If competing yields are expected to change to 8%, what is the current yield on this same bond assuming that you paid
$800?
The current yield is ____% (Round your response to the nearest integer.)
If you sell this bond in exactly one year, having paid $800, and received exactly one coupon payment, what is your total return if competing yields are 8%?
Your total return is _____%.
