Reference no: EM131610755

Question: Before World War I, the British government issued what are called consols, which pay the owner or his heirs a fixed amount of money every year forever. (Cartoonists of the time described aristocrats living off such payments as "pickled in consols.") What should a person expect to pay for consols which pay £10 a year forever? Assume the first payment is one year from the date of purchase and that interest remains 4% per year, compounded annually. (£ denotes pounds, the British unit of currency.)