https://indroyc.com/2015/09/17/a-367-year-old-bond-still-pay...
It's written on goat skin and must be physically presented in the Netherlands to collect interest of 11.34 euros per year.
Yale University bought it in 2003 for 24,000 euros.
One part I don't understand:
According to its original terms, the bond would pay 5% interest in perpetuity, although the interest rate was reduced to 3.5% and then 2.5% during the 18th century.
How's that work? Did the bondholder agree to new terms or did the issuer just unilaterally "change" them?
The government can always unilaterally change the terms. That’s the defining feature of a government, the monopoly on the legitimate use of force. See when the US went off the gold standard [1].
[1] https://www.history.com/this-day-in-history/fdr-takes-united...
Per https://news.yale.edu/2015/09/22/living-artifact-dutch-golde...
The bonds were issued by the Hoogheemraadschap Lekdijk Bovendams, a water board composed of landowners and leading citizens that managed dikes, canals, and a 20-mile stretch of the lower Rhine in Holland called the Lek. (Stichtse Rijnlanden is a successor organization to Lekdijk Bovendams.)
That's the most fundamental difference between a democratic country and authoritarian & tyrannical regimes.
You can sue the US government in US courts and to some extent in international courts.
Not that democratic governments don't abuse their power. They do quite regularly, but still: even their use of force is limited by the law.
So since money in your hands is worth more than that same amount of money in the future, you can actually calculate how much a future cash flow is worth today by discounting it to its present value ("discounted cash flow" aka DCF).
To bring it back to perpetual bonds, if you DCF all of the future cash flows to their present value, you actually get a finite number (due to the diminishing nature of the cash flows that are further and further in the future).
For those who want to learn this in more detail, I recommend MIT's OCW course "Finance Theory I" with Andrew Lo.
How is Roosevelt abrogating America’s gold standard a counterfactual to default risk?
Intuitively, only a sucker would pay $1,000,000,000,000 for the promise of $1 per year in perpetuity, even in the absence of discounted cash flows.
Deriving the value of a perpetuity is simple but revealing [1].
[1] http://fahmi.ba.free.fr/docs/Courses/2012%20HEC/FBA_FE_Chap1...
where they may differ - liquidation preferences (I would assume that bonds pay first) and taxation on proceeds (depends on your country of residence).
Nothing truly "tracks inflation" because inflation itself is a highly debated figure which depends on who calculates it and how it is calculated. It isnt some scientific constant to which we can track.
Value it based on the discounted future income stream like everything else. Sell if offered a price above that. Buy if offered a price below. It’s great to avoid reinvestment risk but inflation risk is real.
Money in the future is worth less than money in the present, so an infinite sequence can have a finite sum when it's priced in today's money.
If the world is ending tomorrow, then much less. If we discover immortality tomorrow, then much more.
Get redeemed anyway
Surprised pikachu face
Current “perpetual bonds” if issued would be inflated away eventually anyway.
