Problem:
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 also matures in 20 years.
Required:
Question: If the required rate of return, kd, is 12 percent for both bonds, what is the difference in current market prices of the two bonds?
Note: Please answer in proper manner and show all computations