ssets, Incorporated, plans to issue $8 million of bonds with a coupon rate of 7.6 percent, a par value of $1,000, semiannual coupons, and 25 years to maturity. The current market interest rate on these bonds is 7.1 percent. In one year, the interest rate on the bonds will be either 9 percent or 4 percent with equal probability. Assume investors are risk-neutral. a.If the bonds are noncallable, what is the price of the bonds today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b.If the bonds are callable one year from today at $1,040, will their price be greater or less than the price you computed in part (a)? multiple choice Greater Lesser
Assets, Incorporated, plans to issue $8 million of bonds with a coupon rate of 7.6 percent, a par value of $1,000, semiannual coupons, and 25 years to maturity. The current market interest rate on these bonds is 7.1 percent. In one year, the interest rate on the bonds will be either 9 percent or 4 percent with equal probability. Assume investors are risk-neutral.
a.If the bonds are noncallable, what is the price of the bonds today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
b.If the bonds are callable one year from today at $1,040, will their price be greater or less than the price you computed in part (a)?
multiple choice
Greater
Lesser
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