Fortescue Metals Group issued 5% per annum bonds on 12 August 2014 that mature on 12 August 2030. The par value of each bond is $1,000. The interest on these bonds is paid, and compounded, annually. The bonds are callable on 12 August 2025 at 115% of par value. Due to the risk profile of Fortescue Metals Group, investors required a 10% per annum rate of return when these bonds were first issued.

a)Determine the value of Fortescue Metals Group's bonds, when they were first issued, if investorsdid not expectthese bonds to be called.

b)Determine the value of Fortescue Metals Group's bonds, when they were first issued, assuming investorsexpected them to be calledon the future call date.