My company has decided to issue perpetual bonds. They can ONLY be redeemed a) if the company goes out of business b) is liquidated, or c) after 50yrs, either by being called away or put to issuer (what's the term for activating a bond's put feature?). They have a par of $1000. The interest rate is 10%, which grows at rate equal to it's size; ie after 1 year it would be 11%, having been increased by 10%, year after that it would be 12.21%, having been increased by 11%, and so on. My question is, if the conditions for the bond to be redeemed were in place, how much would my company have to pay? How do I calculate this; I know that a perpetuity's present value is given by coupon payment divided by the interest rate, and a linearly growing perpetuity's value is given by c/(i-g), but how do I calculate the value of a perpetuity that grows nonlinearly? Could you help me? Thanks!!!!! I'm in the US, btw.
- posted
17 years ago