Question
Williams Industries has decided to borrow money by issuing perpetual bonds with a coupon rate of 6 percent, payable annually. The one-year interest rate is
Williams Industries has decided to borrow money by issuing perpetual bonds with a coupon rate of 6 percent, payable annually. The one-year interest rate is 6 percent. Next year, there is a 45 percent probability that interest rates will increase to 8 percent, and there is a 55 percent probability that they will fall to 5 percent. Assume a par value of $1,000.
a. | What will the market value of these bonds be if they are noncallable? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
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