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ConceptsCoach, Certified Public Accountant (CPA)
Category: Finance
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Experience:  Chartered Accountant and MBA
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A bond that pays interest forever and has no maturity is a

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A bond that pays interest forever and has no maturity is a perpetual bond. In what respect is a perpetual bond similar to a no-growth common stock? Are there preferred stocks that are evaluated similarly to perpetual bonds and other preferred stocks that are more like bonds with finite lives? Answer should be 100 words or more

A perpetual bond is quite similar to preferred stock simply because that it has a stated rate which it pays to the holder of the security. Both of them derive their values from taking the interest/dividends and discounting them for perpetuity.


When a company is on the verge of bankruptcy, bond holder get paid first as against preferred stock holders. However, due to this reason, preferred stock has a higher yield when compared to bonds.


On the other hand to hold a common stock with a no-growth attached to it, is as good as holding a perpetual bond or a preferred stock since the only advantage of holding common stock is that the dividend payments grow and hence increase the value of your common stock holding.


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