KIC, Inc., plans to issue $8 million of bonds with a coupon rate of 11 percent and 20 years to maturity. The current market interest rates on these bonds are 10 percent. In one year, the interest rate on the bonds will be either 12 percent or 8 percent with equal probability. Assume investors are risk-neutral.

  

a.	If the bonds are noncallable, what is the price of the bonds today? Assume a par value of $1,000 and semiannual payments. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

     

Price of the bonds

$

    

b.

If the bonds are callable one year from today at $1,150, will their price be greater or less than the price you computed in part a?

X	Less than
	Greater than

Answer rating: 100% (QA)

Coupon rate 11 Par value 1000 Coupon 1000011 110 Semi Annual Coupon 1102 55 Maturity 20 years a We calculate the present value of the bonds payments f... View the full answer