Valuing Callable BondsAssets, Inc., plans to issue $5 million of bonds with a coupon rate of 7 percent, a par value of $1,000, semiannual coupons, and 30 years to maturity. The current market interest rate on these bonds is 6 percent. In one year, the interest rate on the bonds will be either 9 percent or 5 percent with equal probability. Assume investors are risk-neutral.

a.If the bonds are noncallable, what is the price of the bonds today?

b.If the bonds are callable one year from today at $1,080, will their price be greater or less than the price you computed in (a)? Why?