Suppose the price of a perpetual bond (i.e., a bond with infinite maturity) is $500 and it pays the holder $25 in interest income annually. What is its interest rate, yield or rate or return?
A) 25%
B) 15%
C) 10%
D) 5%
E) 2%

Question

Quizplus · Accepted Answer

The interest rate, yield, or rate of return of a perpetual bond is calculated by dividing the annual interest income by the price of the bond. In this case, $25 / $500 = 0.05, or 5%.

Suppose the Price of a Perpetual Bond (I