Negative Interest Rates and the Perpetuity Paradox

6 Pages Posted: 1 Jan 2020

Date Written: November 19, 2019

Abstract

With 30% of the world's investment grade sovereign bonds trading at sub-zero yields, there is a growing acceptance that negative interest rates are the 'new normal.' Even very low probabilities of sustained negative interest rates in the future leads to incredibly high Expected Values for ultra-long-term bonds. In this paper, we'll explain and offer one solution to what we call the 'Perpetuity Paradox', which provides an extreme example of the care that's needed in deciding how much to invest in an attractive opportunity.

Keywords: negative interest rates, long-term loans, perpetual loans, perpetuity

JEL Classification: B12, B16, B20, C00, C10, C11, C50, C57, C73, D03, D81, D83, E00, G00, G02, G11, G12, G14, G17, G23

Suggested Citation

White, James and Haghani, Victor, Negative Interest Rates and the Perpetuity Paradox (November 19, 2019). Available at SSRN: https://ssrn.com/abstract=3489992 or http://dx.doi.org/10.2139/ssrn.3489992

James White (Contact Author)

Elm Partners ( email )

1630 Willow View Drive
PO Box 1417
Wilson, WY 83014

Victor Haghani

Elm Partners ( email )

1630 Willow View Drive
PO Box 1417
Wilson, WY 83014

HOME PAGE: http://www.elmfunds.com

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