Based on Exhibit 4 and Gillette's forecast regarding Raffarin's share price, the return on the Ri bond over the next year is most likely to be:
A) lower than the return on Raffarin's common shares.
B) the same as the return on Raffarin's common shares.
C) higher than the return on Raffarin's common shares.

Question

Quizplus · Accepted Answer

According to Exhibit 4, Gillette forecasts Raffarin's share price to increase from $41 to only $43 over the next year, which is a relatively small increase of approximately 5%. On the other hand, the Ri bond has a coupon rate of 7.75% and is expected to mature at par value ($1,000) in seven years. Therefore, the return on the Ri bond over the next year is likely to be higher than the return on Raffarin's common shares, making option A the best choice.

Based on Exhibit 4 and Gillette's Forecast Regarding Raffarin's Share