Old Business Ventures Inc. has an outstanding perpetual bond with a 11 percent coupon rate that can

Question:

Old Business Ventures Inc. has an outstanding perpetual bond with a 11 percent coupon rate that can be called in one year. The bonds make annual coupon payments. The call premium is set at $150 over par value. There is a 35 percent chance that the interest rate in one year will be 12 percent and a 65 percent chance that the interest rate will be 8 percent. If the current interest rate is 11 percent, what is the current market price of the bond?

Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a...