Assume investors are risk-neutral

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KIC, Inc., plans to issue $8 million of bonds with a coupon rate of 7 percent and 10 years to maturity. The current market interest rates on these bonds are 10 percent. In one year, the interest rate on the bonds will be either 8 percent or 4 percent with equal probability. Assume investors are risk-neutral. If the bonds are noncallable, what is the price of the bonds today? Assume a par value of $1,000 and semiannual payments.

Reference no: EM131539118

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