Bandon Manufacturing plans to issue $5 million of bonds with a coupon rate of 7.5 percent, a par value of $1,000, semiannual coupons, and 30 years to maturity. The current market interest rate on these bonds is 6.5 percent. In one year, the interest rate on the bonds will be 12 percent or 3 percent with equal probability. Assume investors are risk neutral.

a. If the bonds are non-callable, what is the price of the bonds today?

b. If the bonds are callable one year from today at $1,155, what is the current price of the callable bonds?