Question $3$

New Business Ventures, Incorporated, has an outstanding perpetual bond with a

coupon rate of $12$ percent that can be called in one year. The bond makes annual

coupon payments and has a par value of $$1,000.$ The call premium is set at $$145$ over

par value. There is a $60$ percent chance that the interest rate in one year will be $14$

percent, and a $40$ percent chance that the interest rate will be $9$ percent. If the current

interest rate is $12$ percent, what is the current market price of the bond?