Klondike Adventure, Inc., has outstanding $100 million bonds that pay an annual coupon rate of interest of 11 percent. Par value of each bond is $1,000. The bonds are scheduled to mature in 10 years. Because of Dooleys increased risk, investors now require a 13 percent rate of return on bonds of similar quality. The bonds are callable at 110 percent of par at the end of 5 years.

What price would the bonds sell for assuming investors do not expect them to be called?

Hint: nper = 10 years, fv = 1000)

What price would the bonds sell for assuming investors expected them to be called at the end of 5 years?

Hint: nper = 5, fv = 1100

Excel hints: PV(rate = discount rate for each period, nper = # of coupons, pmt = coupon, fv = par, type = 0) Estimate the cash flow amount and set up of timeline.