Are there other EU countries that issued these kinds of consols? 4% interest sounds like a great low risk investment to own as part of a portfolio
Am I missing something?
Am I missing something?
exp(-r * T)
C1 * exp(-r * T1) + C2 * exp(-r * T2) + ... + CN * exp(-r * TN)
C1 * exp(-r * T1) + C2 * exp(-r * T2) + ...
C * exp(-r) + C * exp(-2r) + C * exp(-3r) + ...
= C * (exp(-r) + exp(-2r) + exp(-3r) + ...)
= C * exp(-r) / (1 - exp(-r))
This is before taking account of the possibility of default, which means that what you thought was an infinite payment stream turns out to be quite finite.
Right now, when interest rates are low, a 4% consol looks like a great deal. But you obviously can't buy a 4% consol at the moment. Maybe you could buy a 1.5% consol, if you're lucky.
And indeed, according to this page, they pay around 3.7%. They don't seeem to trade very often. https://www.fixedincomeinvestor.co.uk/x/bondtable.html?group...
1. Prevailing interest rates can go way above 4%, leaving you with a less-valuable investment. This is what happened for most of the period.
2. Prevailing interest rates can go way below 4%, so your investment ought to be more valuable, but the issuer retained the right to call in and repay the bond at face value. This is what just happened.