Cannon Industrial Equipment is currently issuing both 15-year and 25-year bonds at par.

Cannon Industrial Equipment is currently issuing both 15-year and 25-year bonds at par. The bonds each pay 7 percent annual interest and have face values of $1,000. You decide to purchase one of each of these bonds. Assume the yield to maturity on each of these bonds is 6.4 percent one year from now. Given this, you will realize _____ percent price appreciation on the 15-year bond and _____ percent price appreciation on the 25- year bond.

a. 5.44; 7.39
B. 5.44; 7.26
c. 5.68; 7.26
d. 5.68; 7.39
e. 5.90; 7.51

Answer: The correct answer is 5.44; 7.26.

Enter 14 6.4 70 1,000
N I/Y PV PMT FV
Solve for -1,054.41

Percent price change = ($1,054.41 − $1,000) / $1,000 = .05441 = 5.44 percent
Enter 24 6.4 70 1,000
N I/Y PV PMT FV
Solve for -1,072.60
Percent price change = ($1,072.60 − $1,000) / $1,000 = .0726 = 7.26 percent

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