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Public and Wilt Dixie both have bond issues outstanding. The Public issue has annual interest payments of $60 and it matures in 15 years. The
Public and Wilt Dixie both have bond issues outstanding. The Public issue has annual interest payments of $60 and it matures in 15 years. The Wilt Dixie bond also has annual interest payments of $60, but it matures in 5 years. The market rate of interest is currently 4%. a) What is the difference in the market values of the two bonds? b) If market interest rates fall to 3% over the next year, what will be the new price of the Public bond?
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