Incorporating your guess about future interest rates

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$5 million bond issue. Coupon=8%, 30y to maturity, YTM = 7%. In one year, you expect this rate to go to 10% (p=50%) or to 6% (p=50%).

(a) If the bond is noncallable, what’s the price today incorporating your guess about future interest rates?

(b) If the bond is callable, is the price today more / less than the price you calculated in (a)?

Reference no: EM131905337

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