consols


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Perpetual Bond

A bond in which the issuer does not repay the principal. Rather, a perpetual bond pays the bondholder a fixed coupon as long as he/she holds it. Prices for perpetual bonds vary widely according to long-term interest rates. When interest rates rise, perpetual bonds fall and vice versa. Perpetual bonds are most common in the United Kingdom, where they were used originally to pay for the military.

consols

abbrev. of consolidated stock; government BONDS that have an indefinite life rather than a specific maturity date. People acquire consols in order to buy a future nominal annual income without any expectation of repayment of the issue, though they can be bought and sold on the STOCK EXCHANGE. Because they are never redeemed by the government, the market value of consols can vary greatly in order to bring their EFFECTIVE INTEREST RATE in line with their NOMINAL INTEREST RATE. For example, £100 of consols with a nominal rate of interest of 5% would yield a return of £5 per year. If current market interest rates were 10%, then the market price of the consols would need to fall to £50 so that a buyer would earn an effective return on them of £5/£50 = 10%.