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What is the price of the bonds today

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Reference no: EM132921308

Question - Assets, Inc wanted to issue $5 million of bonds with a coupon rate of 7%, a par value of $1000, semi annual coupons and 30 years to maturity. The current market interest rate on these bonds is 6%. In one year, the interest rate of the bonds will be either 9% or 5% with equal probability. Assume investors are risk neutral.

a. If the price are non callable, what is the price of the bonds today?

b. If the bonds are callable one from today at $1080, will the price be greater or less than the price you computed in (a), why?

Reference no: EM132921308

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