Posted on 12/16/2024 4:31:49 AM PST by C19fan
Most bonds mature eventually and are redeemed after periods of months, years, or even decades. And then there are so-called perpetual bonds.
These bonds have no maturity date and just keep paying interest to the holder forever. On Tuesday, the owner of a perpetual bond that was issued 400 years ago received a payment at a ceremony attended by the Financial Times.
(Excerpt) Read more at msn.com ...
I remember Charlie Munger, Warren Buffets business partner, saying his favorite investment was a perpetual oil-gas royalty stream he bought in the early 1960s for $1000.
when he died, it was paying him $70,000 per year (it rose with inflation and oil / gas prices)
“Dike”, not “Dyke.”
Reminds me of an episode of The Andy Griffith Show (”Mayberry goes bankrupt”) about one of the town’s residents who is about to get evicted from his run down house by the town because he is delinquent on his back taxes.
Looking through his belongings for something to sell to raise money, he comes across a 100-year-old $100 confederate bond (purchased by his grandfather) which is redeemable for the face value plus 8 1/2% interest compounded annually. The town may owe him $350,000 when the town Treasury has only about $10,000 in it.
The South may rise again, but not the Confederate States of America.
I love that episode!
I guess I’ll never know how much...
Yeah, I know, Professor Pedantic.
Great analysis. Since inflation obviously has an enormous effect on infinite term debt securities, another useful formula is for the present value of a perpetuity like this one when corrected for inflation. In this case, the present value is equal to the payment divided by the difference between the interest rate and the inflation rate, assuming that the first payment is received at the end of the first period. There are some elegant mathematical derivations of this interesting limit of an annuity.
I am an electrical engineer (EE) by training. Most EE’s my age think the two most useful real world courses they took were Mechanics 101 (Statics) and Engineering Economics. Mechanics 102 (Dynamics) is probably useful, but too difficult to apply to everyday problems. Statics tells you how to build a bridge (not a common task), hang a picture, install a shelf or a deck. Engineering Economics teaches you to derive and use compound interest formulas. to think about economics probabilistically, to understand insurance and annuities.
Good word. I am flattered.
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