Hello, Please explain.
Let’s denote the price of a nonmaturing bond(called a consol) as Pb. The equation that indicates this price is Pb=I/r, where I is the annual net income the bond generates and r is the nominal market interest rate.
a. Suppose that a bond promises the holder $500 per year forever. The nominal market interest rate is 4 percent.
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Calculate the bond’s current price: $.
(Round your answer to the nearest whole dollar.)