EBK CORPORATE FINANCE
EBK CORPORATE FINANCE
11th Edition
ISBN: 8220102798878
Author: Ross
Publisher: YUZU
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Chapter 15, Problem 8QP

Valuing Callable Bonds KJC, Inc., plans to issue $5 million of bonds with a coupon rate of 8 percent and 30 years to maturity. The current market interest rates on these bonds are 7 percent. In one year, the interest rate on the bonds will be either 10 percent or 6 percent with equal probability. Assume investors are risk-neutral.

  1. a. If the bonds are noncallable, what is the price of the bonds today?
  2. b. If the bonds are callable one year from today at $l,080, will their price be greater or less than the price you computed in (a)'/ Why'/
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Journalizing Bonds Payable/Amortization of a Premium; Author: TLC Tutoring;https://www.youtube.com/watch?v=5gEpAFFnIE8;License: Standard YouTube License, CC-BY
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