The white sands company has $1,000-par-value bonds outstanding
with the following characteristics:
currently selling at par; 5 years until final maturity; and a 9
percent coupon rate (with interest paid semiannually).
Interestingly, American Express has a very similar bond issue
outstanding. In fact, every bond feature is the same as for the
white sands bonds, except that American express bonds mature in
exactly 10 year. Now, assume that the market’s nominal annual
required rate of return for both bond issues...