Infineon AG plans to issue 500 million of bonds with a face value of 100,000, coupon rate
Question:
Infineon AG plans to issue €500 million of bonds with a face value of
€100,000, coupon rate of 3.5 per cent and 10 years to maturity. The current market interest rate on these bonds is 6 per cent. In one year, the interest rate on the bonds will be either 8 per cent or 5 per cent with equal probability. Assume investors are risk-neutral.
(a) If the bonds are non-callable, what is the price of the bonds today?
(b) If the bonds are callable one year from today at €120,000, will their price be greater than or less than the price you computed in (a)? Why?
Fantastic news! We've Found the answer you've been seeking!
Step by Step Answer:
Related Book For
Corporate Finance
ISBN: 9780077173630
3rd Edition
Authors: David Hillier, Stephen A. Ross, Randolph W. Westerfield, Bradford D. Jordan, Jeffrey F. Jaffe
Question Posted: