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Problem 1 5 - 8 Valuing Callable Bonds Assets, Incorporated, plans to issue $ 7 million of bonds with a coupon rate of 7 percent,
Problem Valuing Callable Bonds Assets, Incorporated, plans to issue $ million of bonds with a coupon rate of percent, a par. value of $ semiannual coupons, and years to maturity. The current market interest rate on these bonds is percent. In one year, the interest rate on the bonds will be either percent or percent with equal probability. Assume investors are risk neutral. a If the bonds are noncallable, what is the price of the bonds today? Do not round intermediate calculations and round your answer to decimal places, eg Price of the bonds b If the bonds are callable one year from today at $ will their price be greater or less than the price you computed in part a Greater Lesser
Problem Valuing Callable Bonds
Assets, Incorporated, plans to issue $ million of bonds with a coupon rate of percent,
a par. value of $ semiannual coupons, and years to maturity. The current market
interest rate on these bonds is percent. In one year, the interest rate on the bonds
will be either percent or percent with equal probability. Assume investors are risk
neutral.
a If the bonds are noncallable, what is the price of the bonds today? Do not round
intermediate calculations and round your answer to decimal places, eg
Price of the bonds
b If the bonds are callable one year from today at $ will their price be greater or
less than the price you computed in part a
Greater
Lesser
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