Assets, Incorporated, plans to issue $6 million of bonds with a coupon rate of 7.4 percent, a par value of $1,000, semiannual coupons, and 20 years to maturity. The current market interest rate on these bonds is 6.9 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. 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.) Answer is complete but not entirely correct. 1,060.00 Price of the bonds b. If the bonds are callable one year from today at $1,090, will their price be greater or less than the price you computed in part (a)? Greater $ O Lesser

Assets, Incorporated, plans to issue $6 million of bonds with a coupon rate of 7.4 percent, a par value of $1,000, semiannual coupons, and 20 years to maturity. The current market interest rate on these bonds is 6.9 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. 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.) Answer is complete but not entirely correct. 1,060.00 Price of the bonds b. If the bonds are callable one year from today at $1,090, will their price be greater or less than the price you computed in part (a)? Greater $ O Lesser

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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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 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. a.If the bonds are noncallable, what is the price of the bonds today? b.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? please show all work.
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