QWE wishes to issue a perpetual callable bond (par value = $1,000) that pays 7.1% annual coupon. The current interest rate is 8.5%. Next year, the interest rate will be 3.6% or 8.9% with equal probability. The bond is callable at $1,064, and it will be called if the interest rate drops to 3.6%. What is the issue price of this callable bond?

QWE wishes to issue a perpetual callable bond (par value = $1,000) that pays 7.1% annual coupon. The current interest rate is 8.5%. Next year, the interest rate will be 3.6% or 8.9% with equal probability. The bond is callable at $1,064, and it will be called if the interest rate drops to 3.6%. What is the issue price of this callable bond?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter6: Fixed-income Securities: Characteristics And Valuation

Section: Chapter Questions

Problem 4P

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