Perpetual bond

Perpetual bond, which is also known as a Perpetual or just a Perp, is a bond with no maturity date.[1] Therefore, it may be treated as equity, not as debt. Perpetual bonds pay coupons forever, and the issuer does not have to redeem them. Their cash flows are, therefore, those of a perpetuity.

Examples of perpetual bonds are consols issued by the UK Government. Most perpetual bonds issued nowadays are deeply subordinated bonds issued by banks. The bonds are counted as Tier 1 capital, and help the banks fulfil their capital requirements. Most of these bonds are callable, but the first call date is never less than five years from the date of issue—a call protection period.

Pricing

Perpetual bonds are valued using the formula: \frac{y}{i} where y is an expected yield for maximum term available and i is Annual Coupon Interest on a bond. [2]

References

  1. ^ Types of Bonds: The Valuation of Long-Term Securities
  2. ^ BOND VALUATION

External links

Types of bonds by issuer
Types of bonds by payout
Bond valuation
Securitized products
Bond options
Institutions