Assume that McDonald's and Burger King have similar $1,000 par value bond issues outstanding.The bonds are equally risky.The Burger King bond has interest payments of $80 paid annually and matures 20 years from today.The McDonald's bond has interest payments of $80 paid semiannually,and it also matures in 20 years.If the simple required rate of return,r_d,is 12 percent,semiannual basis,for both bonds,what is the difference in current market prices of the two bonds? A) No difference. B) $2.20 C) $3.77 D) $17.53 E) $6.28

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Quizplus · Accepted Answer

The McDonald's bond pays interest semiannually, so it compounds more frequently than the Burger King bond, which pays annually. This results in a higher present value for the McDonald's bond, leading to a difference in their market prices.

Assume That McDonald's and Burger King Have Similar $1,000 Par