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A firm wishes to issue a perpetual callable bond. The current interest rate is 6%. Next year, there is a 40% chance that the interest
A firm wishes to issue a perpetual callable bond. The current interest rate is 6%. Next year, there is a 40% chance that the interest rate will be 5% and a 60% chance that the rate will be 7.3%. The bond is callable at $1,090, and it will be called if the interest rate drops to 5%. What is the bond's value today if the coupon is set at $100? Show your work.
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