Perpetual Bond

An example from the article of one of the oldest perpetual bonds still paying out:<p><a href="https:&#x2F;&#x2F;indroyc.com&#x2F;2015&#x2F;09&#x2F;17&#x2F;a-367-year-old-bond-still-paying-interest&#x2F;" rel="nofollow">https:&#x2F;&#x2F;indroyc.com&#x2F;2015&#x2F;09&#x2F;17&#x2F;a-367-year-old-bond-still-pay...</a><p>It&#x27;s written on goat skin and must be physically presented in the Netherlands to collect interest of 11.34 euros per year.<p>Yale University bought it in 2003 for 24,000 euros.<p>One part I don&#x27;t understand:<p><i>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.</i><p>How&#x27;s that work? Did the bondholder agree to new terms or did the issuer just unilaterally &quot;change&quot; them?

The TLDR for how a bond that continues to pay interest forever can be valued at less than infinity dollars is due to the &quot;time value of money&quot;, 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.<p>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 (&quot;discounted cash flow&quot; aka DCF).<p>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).<p>For those who want to learn this in more detail, I recommend MIT&#x27;s OCW course &quot;Finance Theory I&quot; with Andrew Lo.

there is nothing scary in the concept of perpetuity when it comes to bonds. the experts may correct me, but I would think that a comparable instrument to this would be a preferred stock: you do not have voting rights, you agree to receive a fixed rate until the issuer buys back or goes bankrupt.<p>where they may differ - liquidation preferences (I would assume that bonds pay first) and taxation on proceeds (depends on your country of residence).

Property 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.

&quot;Never sell consols&quot;.

Thus money and capital are <i>different</i> things with different cardinalities. (More: <a href="https:&#x2F;&#x2F;asemic-horizon.com&#x2F;2021&#x2F;07&#x2F;31&#x2F;zero-chroma-infinity&#x2F;" rel="nofollow">https:&#x2F;&#x2F;asemic-horizon.com&#x2F;2021&#x2F;07&#x2F;31&#x2F;zero-chroma-infinity&#x2F;</a> )

It&#x27;s a shame they don&#x27;t still sell these. They&#x27;re so much simpler than a bond with a coupon and principal. Was the reason they stopped just because people mistakenly thought that they were &#x27;infinite debt&#x27;?

Be perpetual bond (consul)<p>Get redeemed anyway<p>Surprised pikachu face<p>Current “perpetual bonds” if issued would be inflated away eventually anyway.