If the Interest Rate Is R and Will Remain R

question 32

Multiple Choice

If the interest rate is r and will remain r forever, then a bond that will pay 95 dollars a year forever, starting one year from now, is worth how much today?

• A)95/(1 + r)dollars.
• B)95(1 + r)dollars.
• C)95/r dollars.
• D)95/(1 + r + r² ........+ rⁿ +........)dollars.
• E)None of the above.

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Definitions:

Stock Split

A corporate action that increases the number of shares in a company by issuing more shares to current shareholders proportional to their ownership.

Market Value

The current value of an asset or company based on the price that it can be sold in the open market.

Paid In Surplus

The amount of money paid by investors for shares above their nominal value, representing additional contributed capital.

Stock Split

A corporate action in which a company divides its existing shares into multiple shares to boost the stock's liquidity, though the market capitalization remains the same.