Perpetual Bond
en.wikipedia.org
Perpetual Bond
1–10 of 35 posts
Re: Perpetual Bond
#2"Never sell consols".
Re: Perpetual Bond
#3Be perpetual bond (consul)
Get redeemed anyway
Surprised pikachu face
Current “perpetual bonds” if issued would be inflated away eventually anyway.
Re: Perpetual Bond
#4An example from the article of one of the oldest perpetual bonds still paying out:
https://indroyc.com/2015/09/17/a-367-year-old-bond-still-pay...
It's written on goat skin and must be physically presented in the Netherlands to collect interest of 11.34 euros per year.
Yale University bought it in 2003 for 24,000 euros.
One part I don't understand:
According to its original terms, the bond would pay 5% interest in perpetuity, although the interest rate was reduced to 3.5% and then 2.5% during the 18th century.
How's that work? Did the bondholder agree to new terms or did the issuer just unilaterally "change" them?
Re: Perpetual Bond
#5"Never sell consols".
Eh. Take a look at the antique bond on goatskin parchment that financed a whole dike, now paying a mere €11.35 a year, valued only as a curiosity.
Value it based on the discounted future income stream like everything else. Sell if offered a price above that. Buy if offered a price below. It’s great to avoid reinvestment risk but inflation risk is real.
Re: Perpetual Bond
#6Thus money and capital are different things with different cardinalities. (More: https://asemic-horizon.com/2021/07/31/zero-chroma-infinity/ )
Re: Perpetual Bond
#7An example from the article of one of the oldest perpetual bonds still paying out: https://indroyc.com/2015/09/17/a-367-year-old-bond-still-pay... It's written on goat skin and must be physically presented in the Netherlands to collect interest of 11.34 euros per year. Yale University bought it in 2003 for 24,000 euros. One part I don't understand: According to its original terms, the bond would pay 5% interest in pe…
> How's that work? Did the bondholder agree to new terms or did the issuer just unilaterally "change" them?
The government can always unilaterally change the terms. That’s the defining feature of a government, the monopoly on the legitimate use of force. See when the US went off the gold standard [1].
[1] https://www.history.com/this-day-in-history/fdr-takes-united...
Re: Perpetual Bond
#8Property giving rent is behaves a inflation adjusted bond - in the long run the rent will increase along with inflation, while the coupon payment of perpetual bond stays constant (reduces in value due to inflation over time). Both perpetual bonds and property price will increase when interest rates fall.
Re: Perpetual Bond
#9Thus money and capital are different things with different cardinalities. (More: https://asemic-horizon.com/2021/07/31/zero-chroma-infinity/ )
That's just confusion about discount rates.
Money in the future is worth less than money in the present, so an infinite sequence can have a finite sum when it's priced in today's money.
Re: Perpetual Bond
#10The TLDR for how a bond that continues to pay interest forever can be valued at less than infinity dollars is due to the "time value of money", which states that $X in the future is worth less than $X today. This makes sense intuitively if you consider that if you had that money today, you could invest it and earn interest on it.
So since money in your hands is worth more than that same amount of money in the future, you can actually calculate how much a future cash flow is worth today by discounting it to its present value ("discounted cash flow" aka DCF).
To bring it back to perpetual bonds, if you DCF all of the future cash flows to their present value, you actually get a finite number (due to the diminishing nature of the cash flows that are further and further in the future).
For those who want to learn this in more detail, I recommend MIT's OCW course "Finance Theory I" with Andrew Lo.