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What is the price of the bonds today

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Assets, Inc., plans to issue $5 million of bonds with a coupon rate of 7 percent, a par value of $1,000, semiannual coupons, and 30 year to maturity, The current market interest rate on the bonds is 6 percent. In one year, the interest rate on the bonds will be either 9 percent or 5 percent with equal probability. Assume investors are risk-neutral.

Problem a. If the bonds are noncallable, what is the price of the bonds today?

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

Reference no: EM132951737

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