Which statement best describes a perpetual bond?

Which statement best describes a perpetual bond?

• A. A It has a finite lifespan and matures at par.
• B. B It has no maturity date and pays coupons indefinitely.
• C. C It is senior secured.
• D. D It is always callable.

Answer: (B)

Perpetual bonds have an infinite life and pay coupon payments forever, with no principal repayment at any date. That endless coupon stream without a maturity date is the defining feature. The statement that describes no maturity and coupons indefinitely matches this concept exactly, making it the best description. The idea of a finite lifespan and maturing at par describes ordinary bonds, not perpetuities. Being senior secured concerns security in the capital structure rather than duration, and perpetuals can be unsecured or secured, so that choice isn’t defining either. Lastly, perpetuals are not inherently always callable; whether they are callable depends on specific terms, not the perpetual nature itself.

Perpetual bonds have an infinite life and pay coupon payments forever, with no principal repayment at any date. That endless coupon stream without a maturity date is the defining feature. The statement that describes no maturity and coupons indefinitely matches this concept exactly, making it the best description. The idea of a finite lifespan and maturing at par describes ordinary bonds, not perpetuities. Being senior secured concerns security in the capital structure rather than duration, and perpetuals can be unsecured or secured, so that choice isn’t defining either. Lastly, perpetuals are not inherently always callable; whether they are callable depends on specific terms, not the perpetual nature itself.