Question: Old Business Ventures Inc has an outstanding perpetual bond with
Old Business Ventures Inc. has an outstanding perpetual bond with a 11 percent coupon rate that can be called in one year. The bonds make annual coupon payments. The call premium is set at $150 over par value. There is a 35 percent chance that the interest rate in one year will be 12 percent and a 65 percent chance that the interest rate will be 8 percent. If the current interest rate is 11 percent, what is the current market price of the bond?
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