1. A perpetual bond pays a coupon of $25 per year.
a. If in year 1 this bond sells for $200, what is its yield to maturity?
b. If interest rates move to 20% next year, what will this bond sell for?
2. Mr. ZZZ suddenly remembers a savings account that was opened 70 years earlier and finds that it contains a balance of $1521.32. How much was the original balance if the interest rate remained at 5% for the whole 70 year period?
3. Peter Minuet, the first director general of New Netherlands province, purchased Manhattan Island from the local Canarsee Indians for approximately $24 in 1626. It is often claimed that the Indians got a raw deal. If the appropriate interest rate is 8%, what would the $24 the Indians collected be worth in 2010?