Lets denote the price of a nonmaturing bond (called a consol) as Pb. The equation that indicates this price is Pb = l/r, where l is the annual income the bond generates.and r is the nominal market interest rate.
a. Suppose that the bond promises the holder $500.00 per year forever. If the nominal market interest rate is 6%, what is the bonds current price?
b. What happens to the bonds price if the interest rate is raised to 10%?