Question
Old Business Ventures Inc. has an outstanding perpetual bond with an 5.6 percent coupon rate that can be called in one year. The bonds make
Old Business Ventures Inc. has an outstanding perpetual bond with an 5.6 percent coupon rate that can be called in one year. The bonds make annual coupon payments. The call premium is set at $103 over par value. There is a 39 percent chance that the interest rate in one year will be 6.6 percent and a 61 percent chance that the interest rate will be 3.0 percent. If the current interest rate is 5.6 percent, what is the current market price of the bond? What will be the value of the call provision? (Do not round intermediate calculations. Round the final answers to 2 decimal places. Omit $ sign in your response.)
Price of the bond | |
Value of the call provision |
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