The Canadian government has once again decided to issue a consol
The Canadian government has once again decided to issue a consol (a bond with a never-ending interest payment and no maturity date). The bond
will pay $50 in interest each year (at the end of the year), but it will never return the principal. The current discount rate for Canadian government bonds is
6.5%. What should this consol bond sell for in the market? What is the interest rate should fall to 4.5%? Rise to 8.5%? Why does the price go up when interest
rates fall? Why does the price go down when interest rates rise?
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