Solve Question 1 and 2 with details

1. (Question 21.11 from the textbook) Bobcaygeon Industries has decided to borrow money by issuing perpetual bonds with a coupon rate of 7 percent, payable annually. The one-year interest rate is 7 percent. Next year, there is a 40 percent probability that interest rates will increase to 9 percent, and there is a 60 percent probability that they will fall to 5 percent. a. What will the market value of these bonds be if they are non-callable? b. If the company instead decides to make the bonds callable in a 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. c. What will be the value of the call provision to the company? 2. (Question 23.21 from the textbook) Sunburn Sunscreen has a zero-coupon bond issue outstanding with a $15,000 face value that matures in one year. The current market value of the firm's assets is $15,800. The standard deviation of the return on the firm's assets is 38 percent per year, and the annual risk-free rate is 5 percent per year, compounded continuously. Based on the Black-Scholes model, what is the market value of the firm's equity and debt