Valuing Callable Bonds 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 years to maturity. The current market interest rate on these 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. If the bonds are noncallable, what is the price of the bonds today? If the bonds are callable one year from today at $1,080, will their price be greater or less than the price you computed in (a)? Why?

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A: Bond value is the present value of all coupon payments and par value.

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Q: Provide the right answer

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A: Step 1: Step 2: Step 3: Step 4:

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A: Excel Spreadsheet: Excel Workings:

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A: Solution:- Face value means the par value of which the bonds will be issued.

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