# Present Value of Two Bonds

I am using Excel to solve this one with the PV function. I am thinking that there is no difference in the current market prices for these, but I am not sure how to explain why. I believe it is because they have coupons and the interest is not compounding.

Thanks

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 an annual coupon rate of 8 percent and matures 20 years from today. The McDonald's bond has a coupon rate of 8 percent, with interest paid semiannually, and it also matures in 20 years. If the nominal required rate of return, rd, is 12 percent, semiannual basis, for both bonds, what is the difference in current market prices of the two bonds?

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#### Solution Preview

Pls see the attached file

For Mcdonald, interest is paid semiannually, so the coupon is $40, period is 20X2=40 and the discounting rate is 6% ( for semiannual). The price using the PV ...

#### Solution Summary

The solution explains how to calculate the present value of a bond