Chapter examples for financial management

New Business Ventures. Inc.. has an outstanding perpetual bond with a coupon rate of 12 percent that can he called in one year. The bond makes annual coupon payments and has a par value of $1.000. The call premium is set at $130 over par value. There is a 60 percent chance that the interest rate in one year will be 14 percent, and a 40 percent chance that the interest rate will he 10 percent. If the current interest rate is '12 percent. what is the current market price of the bond? [Do not round intermediate calculations and round your answer to 2 decimal places, e.g.. 32.15.] cumtmmn-m Assets, Inc., plans to issue $5 million of bonds with a coupon rate of 8 percent. a par value of $1.000. semiannual coupons. and 30 years to maturity. The current market interest rate on these bonds is 7 percent. In one year. the interest rate on the bonds will be either 12 percent or 4 percent with equal probability. Assume investors are risk- neutral. e. 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.) ' 9 Answer Is complete but not entirely correct. Prioe of the bonds 3 364.00 9 b. If the bonds are callable one year from today at $1,150. will their price be greater or less than the price you computed in part [a]? Lesser a Greater