Question

2. an investor purchasing a british consol is entitled to receive annual payments from the british government forever. what is the price of a consol that pays $120 annually if the next payment occurs one year from today? the market rate is 15 percent.

Answer 1

800 he price of a consol that pays $120 annually if the next payment occurs one year from today.

Explanation

Price = C/r

Here, C or constant payment = $120

and, r or opportunity cost = 15%

So, Price = 120/(15/100)             ...{percent/100}

               = 800

What is constant payment?

The amount paid annually to settle or service a debt in relation to the total loan amount is known as the mortgage constant. The annual amount of cash required to service a mortgage debt can be calculated with the aid of the mortgage constant.

The annual proportion of money paid to service debt divided by the total loan amount is known as a mortgage constant. Since the outcome is expressed as a percentage, it shows what portion of the entire debt is repaid annually. Borrowers can estimate their annual mortgage payment using the mortgage constant. Since a lower mortgage constant would result in a lower annual debt servicing expense, the borrower would prefer it.

Learn more about constant payment

brainly.com/question/14765642

#SPJ4