1. A friend who owns a perpetuity that promises to pay R1000 at the end of each year, forever, comes to you and offers to sell you all of the payments to be received after the 25th year for a price of R1000. At an interest rate of 10 per cent, should you pay the R1000 today to receive payment numbers 26 and onwards? what does this suggest to you about the value of perpetual payment?
2. Seven years ago, you purchased a bond with a 30 year maturity and a 7 percent annual coupon. The bond was issued with a 7 percent call premium. You originally paid $1,086 for the bond and the company just called the bond. Compute your realized rate of return.