Use the following statements to answer this question:
I. The effective yield is generally easier to compute for a perpetuity than for a 10-year bond.
II. Two perpetuities that have the same annual payment must have the same price, even if the issuers of the bonds are different companies.

Question

Quizplus · Accepted Answer

Statement I is true as the effective yield for a perpetuity can be calculated using a simple formula whereas it is more complex for a 10-year bond. However, Statement II is false as the price of a perpetuity is based on the interest rate, and if the two perpetuities have different interest rates, then they will have different prices even if the issuers are the same company.

Use the Following Statements to Answer This Question