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What is the expected value of the bonds

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Jack's Construction Co. has an outstanding 10-year bond that pays semi-annual coupons. Because of potential changes in interest rates, the price of the Jack's bond could be $700 or $1,400 at the end of the year with 1/3 or 2/3 probability.

(1) What is the expected value of the bonds after 1 year if they are callable at $1,200?

(2) What's the call premium?

Reference no: EM132516246

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