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Georgia Keef has corporate bonds yielding 6% and government bonds yielding 4%. In 2021, Can-Air...

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Accounting

Georgia Keef has corporate bonds yielding 6% and government bonds yielding 4%. In 2021, Can-Air issued 20-year bonds paying a yield of 12%.

Georgia called John Foster, a financial analyst, for information. He mentioned that Can-Air has a low credit rating, compounded by the damage done to the industry because of COVID-19. Georgia is excited to purchase Can-Air bonds because of the potential return and does not seem phased by her conversation with John.

  1. Assume the bonds are 20-years and have a maturity value of $1,000. What would the price of bonds be if poor market conditions increased the yield of the bonds to 15% in two years? (Annual analysis)
  2. Would you recommend the purchase of Can-Air bonds to Georgia?

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