Bonds are noncallable-price of the bonds

Assignment Help Financial Management

Reference no: EM131355269

KIC, Inc., plans to issue $5 million of bonds with a coupon rate of 6 percent and 20 years to maturity. The current market interest rates on these bonds are 9 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.

a. If the bonds are noncallable, what is the price of the bonds today? Assume a par value of $1,000 and semiannual payments. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Price of the bonds

b. If the bonds are callable one year from today at $1,060, will their price be greater or less than the price you computed in part a?

Greater than or less than

Reference no: EM131355269

Questions Cloud

Fundamental effects that positive social climate exerts : From the first e-Activity, explain whether or not you believe it is fair for non-athletes to be exempt from random drug testing in schools. Justify your response.

Locate the centroid of the area : The U-shaped built-up section shown is composed of dressed (S4S) timber sections. (See Appendix E for dressed sizes.) Locate the centroid of the area.

Opportunity cost of attending college : Gallagher is planning on going to college in a few months. The tuition is $2,000 a year. Assuming that Gallagher goes to college for four years , is the opportunity cost of his attending college $8,000? Why or why not?

How was your observation unobtrusive : Discuss the variables to be considered in prioritizing problem behaviors for intervention - Briefly describe the setting and the individual you observed - define the behavior in clear, objective and complete terms so it can be measured.

Bonds are noncallable-price of the bonds : KIC, Inc., plans to issue $5 million of bonds with a coupon rate of 6 percent and 20 years to maturity. The current market interest rates on these bonds are 9 percent. If the bonds are noncallable, what is the price of the bonds today? Assume a par v..

What action research or organizational step was missing : m41c- What action research or organizational step was missing and Why missing this step might have led to failure. Your task for this assignment is not to explain what steps the organization should take-you would need.

Are older people happier than younger people : Are older people happier than younger people? Watch the following Ted Lecture and submit a page summary including your point of view

What is the net effect on the monetary base : What is the net effect on the monetary base? How has the Fed's balance sheet been affected? Please show your work

Read the chapters and give your reviews : Given that this is course is taught exclusively on line, you need to read and understand material that is presented. Please read Chapters 1 and 2 as indicated on the syllabus and then submit the five most important items found in each chapter. L..

User Account

All Pages