Newfoundland Industries has decided to borrow money by issuing perpetual bonds with a coupon rate of $7\mathrm{.}5$ percent, payable

annually. The one$-$year interest rate is $7\mathrm{.}5$ percent. Next year, there is a $40$ percent probability that interest rates will increase to $8$

percent, and there is a $60$ percent probability that they will fall to $6$ percent.

a$.$ What will the market value of these bonds be if they are non$-$callable? $($Do not round intermediate calculations. Round the final

answer to $2$ decimal places. Omit $ sign in your response.$)$

Market value $

b$.$ If the company decides instead to make the bonds callable in one year, what coupon will be demanded by the bondholders for the

bonds to sell at par? Assume that the bonds will be called if interest rates fall and that the call premium is equal to the annual coupon.

$($Do not round intermediate calculations. Round the final answer to $2$ decimal places.$)$

Coupon rate

$\%$

c$.$ What will be the value of the call provision to the company? Assume the coupon rate is as in part $($b$).($Do not round intermediate

calculations. Round the final answer to $2$ decimal places. Omit $ sign in your response.$)$