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Assets, Inc., plans to issue $7 million of bonds with a coupon rate of 10 percent, a par value of $1,000, semiannual coupons, and 10
Assets, Inc., plans to issue $7 million of bonds with a coupon rate of 10 percent, a par value of $1,000, semiannual coupons, and 10 years to maturity. The current market interest rate on these bonds is 9 percent. In one year, the interest rate on the bonds will be either 12 percent or 8 percent with equal probability. Assume investors are risk-neutral.
a.
If the bonds are noncallable, what is the price of the bonds today?
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