Perpetual Bonds (бессрочныя облигации)

The first (and easiest) place to start determining the value of bonds is with a unique class of bonds that never matures. These are indeed rare, but they help illustrate the valuation technique in its simplest form. Originally issued by Great Britain after the Napoleonic Wars to consolidate debt issues, the British consol (short for consolidated in the annuities) is one such example. This bond carries the obligation of the British government to pay a fixed interest payment in perpetuity. The present value of a perpetual bond would simply be equal to the capitalized value of an infinite stream of interest payments. If a bond promises a fixed annual payment of I forever, its present (intrinsic) value, V, at the investor's required rate of return for this debt issue, is between risk and return for securities - that is the higher the risk of a security the higher the expected return that must be offered the Investors. There we viewed the value of a security as the present value of the cash-flow stream provided to the Investor, discounted at required rate of return appropriate for the risk involved. We have, however, purposely postponed until now a more detailed treatment of risk and return. We wanted you first to have an understanding of certain valuation fundamentals before tackling this more difficult topic.

Most everyone recognizes that risk must be considered in determining value and making investment choices. In fact, valuation and an understanding of the trade-oil between risk and return form the foundation for maximizing shareholder wealth. And yet, there is controversy over what is risk and how it should be measured.

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