Question

A bond that pays interest forever and has no maturity date is a perpetual bbond, also called a perpetuity or a consol. In what respect is a perpetual bond similar to 1) a no-growth common stock and 2) a share of preferred stock?

Answer 1

Answer: A perpetual bond is similar to a no growth stock and a share of preferred stock as they all derive their values from a series of cash inflows.

Explanation: A perpetual bond is a bond with no maturity date. Issuers pay COUPONS on them forever. This represents the cash inflows.

In the same vein, both a no-growth stock and share of preferred stock derive their values from a series of cash inflows called DIVIDENDS.