An investor holds a perpetual government bond (consol) that pays a fixed annual coupon of £24. The market interest rate rises from 4% to 6%.
Which of the following correctly identifies the change in the market price of the bond and the theoretical effect of this interest rate change on the speculative demand for money?
The market price of the bond decreases by £200, and the speculative demand for money decreases.
The market price of the bond decreases by £200, and the speculative demand for money increases.
The market price of the bond increases by £200, and the speculative demand for money decreases.
The market price of the bond decreases by £48, and the speculative demand for money remains unchanged.
