Final answer:
To calculate the price of a perpetual bond next year with a current market interest rate different from the bond's coupon rate, we divide the annual payments by the market interest rate. Given the bond's annual payment of $72 and a market interest rate of 8.3%, the bond price is calculated by $72 / 0.083.
Step-by-step explanation:
The subject of this question is the calculation of a perpetual bond's price when the market interest rate has changed. To determine the price of a bond next year when the market interest rate is different from the bond's coupon rate, we use the present value of the perpetual payments the bond will make, adjusted by the current market interest rate. In this case, the bond has a par value of $1,000 and pays a 7.2% annual coupon, which gives us annual payments of $72. If the current market interest rate is 8.3%, the price of the perpetual bond next year will be the present value of these $72 perpetual payments, divided by the 8.3% market interest rate.
The formula for calculating the price of a perpetual bond is as follows:
Price = Annual Payment / Market Interest Rate
In this scenario, the price is calculated as $72 / 0.083, which gives us the price of the bond next year. You would need to calculate the current year's price first and then adjust it according to any relevant factors that might affect it next year, such as reinvestment of coupons or changes in market interest rates.