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Assets, Incorporated, plans to issue $ 6 million of bonds with a coupon rate of 7 . 8 percent, a par value of $ 1

Assets, Incorporated, plans to issue $6 million of bonds with a coupon rate of 7.8
percent, a par value of $1,000, semiannual coupons, and 25 years to maturity. The
current market interest rate on these bonds is 7.1 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.)
b. If the bonds are callable one year from today at $1,060, will their price be greater or
less than the price you computed in part (a)?
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