New Business Ventures, Inc., has an outstanding perpetual bond with a coupon rate of 8 percent that can be called in one year. The bond makes annual coupon payments. The call premium is set at $100 over par value. There is a 60 percent chance that the interest rate in one year will be 10 percent, and a 40 percent chance that the interest rate will be 5 percent. If the current interest rate is 8 percent, what is the current market price of the bond? Assume a par value of $1,000. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

New Business Ventures, Inc., has an outstanding perpetual bond with a coupon rate of 8 percent that can be called in one year. The bond makes annual coupon payments. The call premium is set at $100 over par value. There is a 60 percent chance that the interest rate in one year will be 10 percent, and a 40 percent chance that the interest rate will be 5 percent. If the current interest rate is 8 percent, what is the current market price of the bond? Assume a par value of $1,000. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter6: Fixed-income Securities: Characteristics And Valuation

Section: Chapter Questions

Problem 4P

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