British consol bonds were issued in 1927 to refinance Britain’s debt from the First World

Question

British consol bonds were issued in 1927 to refinance Britain’s debt from the First World War. They were attractive investments to the working class because they paid 4% interest...forever! All those bonds have been purchased back by the government. However, imagine that today the U.K. were to issue new consol bonds that paid £50 per annum. What would such a bond be worth (in pounds), if long-term interest rates were estimated at 6%?

Answer 1

The value of a perpetuity is simply 1 divided by the interest rate times the amount of the Perpetual payment. Here the interest rate is 6% . 1 / 6% is simply 100 / 6. This was on 50 lb so the value of this perpetuity would be 50 times a hundred all divided by 6 or 5000 / 6 in pounds. You could * 16 and turned it into ounces. I'm just kidding