What is the current market price of the bond

Assignment Help Financial Management

Reference no: EM131075768

New Business Ventures, Inc., has an outstanding perpetual bond with a coupon rate of 8 percent that can be called in one year. The bond makes annual coupon payments. The call premium is set at $100 over par value. There is a 60 percent chance that the interest rate in one year will be 10 percent, and a 40 percent chance that the interest rate will be 5 percent. If the current interest rate is 8 percent, what is the current market price of the bond? Assume a par value of $1,000. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Reference no: EM131075768

Questions Cloud

What has happened to the market value of those bonds : A city has issued 25- year general obligation bonds with a coupon rate of 8 percent. If the market rate currently available on comparable bonds is 10 percent, what has happened to the market value of those bonds?

Weaves cotton placemats to sell at local crafts shop : Each autumn, as a hobby, Suzanne De Angelo weaves cotton placemats to sell at a local crafts shop. The mats sell for $20 per set of four. The shop charges a 10% commission and remits the net proceeds to De Angelo at the end of December. De Angelo has..

Find the orthogonal projection : MATH 54 QUIZ 8. Compute an orthogonal basis of P2 where the inner product is defined by (f, g) = f(-1)g(-1) + f(0)g(0) + f(1)g(1). Find the orthogonal projection

Financial accounting principles as the correct measure : According to the Supreme Court, would it be good tax policy to use income tax as computed by financial accounting principles as the correct measure of income for Federal income tax purposes? Explain.

What is the current market price of the bond : New Business Ventures, Inc., has an outstanding perpetual bond with a coupon rate of 8 percent that can be called in one year. The bond makes annual coupon payments. The call premium is set at $100 over par value. what is the current market price of ..

If equity is sold compute the new price of the share : Benson, Athavale & Kemper (BAK) started a manufacturing facility in the last century. This firm, profitable since inception produces steering units for the automotive industry. The 3 founders have been averse to debt. IF EQUITY IS SOLD COMPUTE THE NE..

Cost of equity is using capital asset pricing model : Petrobras’s cost of equity is estimated using the CAPM (Capital Asset Pricing Model). Observe that Petrobras’s beta has been calculated using the NYSE stock index as the market portfolio.

Present value in dollars of expected stream of euro dividend : Nicorex Inc., a US corporation, expects to receive cash dividends from an Italian joint venture over the next four years. Suppose that today is January 1st, 2016. The first dividend, to be paid on December 31, 2016, is expected to be €1,000,000. Comp..

Unsalable inventory-uncollectible accounts receivable : Financial statement analysis can be used to identify weaknesses in a firm’s operations. Uncollectible accounts receivable – you could compare the firm’s average collection period to other peer firms and look for trends over time that might suggest de..

User Account

All Pages